In September, for the time in four years the Fed reduced short term rates and as a result the dollar hit record lows against the Euro. The two largest economies in the world are now following diametrically opposite monetary policies. With continued problems in the US housing sector, the Fed’s primary policy objective is on sustaining growth and therefore easing monetary conditions, while the ECB remains far more focused on price pressures and maintains a decidedly more hawkish monetary posture. As the year comes to a close, If the Fed continues to lower rates while ECB initiates another round of tightening the EURUSD could set new highs yet again.
Boris Schlossberg
Senior Strategist
