The euro just fell below $US1.28, extending the currency’s ugly decline against the dollar.
This comes as economic data continues to confirm deterioration in the euro area economy.
Earlier today, we learned Germany’s IFO business climate index fell to 104.7 in September from 106.3 in August. This was worse than the 105.8 expected by economists.
“Weak growth in Eurozone trading partners, tensions with Ukraine and, possibly, a slowdown in China continue to weigh on the main German business survey index,” Pantheon Macroeconomics’ Claus Vistesen said.
The European Central Bank has been easing policy further as economic activity stagnates and prices fall. In fact, the latest effort by the ECB to stimulate the economy flopped, and that has economists predicting even looser monetary policy.
Meanwhile, the Federal Reserve has been priming the market for tighter monetary policy as the US economy has continued to improve.
All of this has resulted in a stronger dollar and higher US interest rates and a weaker euro and lower eurozone interest rates.
In a research note to clients earlier this week, Goldman Sachs analysts forecasted that the euro would fall all the way to $US1 by 2017.
It’s a long way from $US1, but it’s heading in that direction.
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