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Sharp decrease in euro value again

On Monday morning, the value of the euro compared to the dollar once again sharply decreased. The European currency dropped to its lowest rate since the beginning of this year, according to the ANP news agency. During the morning trade, the euro reached a low point of 1.0728 dollars, against 1.0840 dollars at the closing of European stock exchanges on Friday. The last time the euro was worth this little, was on 6 January, after the exchange rates dropped to 1.05 euro a few times last year. The value of the euro is under pressure because, among other things, it is expected that interest in the US will be increased before the end of the year. 

Before the elections, it was estimated that a Trump victory would cause so much unrest on the market that the Fed would indefinitely postpone an increase of interest. Due to the favourable response on the markets since last Tuesday’s elections, however, that prognosis has disappeared again.

Moreover, Trump’s promises of sizeable investments in American infrastructure and tax cuts, feed expectations that inflation will rise significantly in the US in the coming years. That could mean that interest will rise quicker and further in the country than was previously expected.

The expectation of a sharply increasing inflation is also clearly visible on the bond market, on which interest on American government loans has been sharply increasing since the elections. The return on ten-year American government bonds was at 2.23 per cent on Monday morning, against 1.8 per cent a week earlier.

The return on government loans is moving in the opposite direction of the value. An increasing interest indicates a decreasing value and a decreasing demand for the debt concerned.

Source: ANP
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