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(Bloomberg) — The European Central Bank is unlikely to intervene directly in currency markets, even in the face of a more than 10% drop in the euro this year, though it’s conceivable that Japan will have interaction in this type of intervention if the yen continues to fall, according to Goldman Sachs Group Inc.
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The U. S. dollar, driven by a combination of competitive federal financial policy and safe-haven purchases, is trading near its highest point in decades, moving currencies from Hungary to New Zealand. The euro and the yen, the dollar’s most traded pairs, have struggled. to defend themselves, while some countries such as Chile and India have already taken direct steps in their currencies.
Still, the chances of such an ECB resolution in the near term are low, according to Goldman fx strategist Karen Reichgott Fishman, who says President Christine Lagarde and her colleagues have more pressing problems to solve before focusing their attention on supporting a common Europe. motto. The most sensible on the list are skyrocketing inflation, dangers to the energy source and the deterioration of so-called peripheral bond markets, such as Italy’s, whose disorders are exacerbated by political turmoil.
These disorders supported the central bank’s decision on Thursday to raise its benchmark rate by half a percentage point, its first increase in a decade, and provide more important points about its new bond market instrument, which aims to avoid a breakout. of the Euroregion.
“Risks of fragmentation”
“Concerns about the dangers of fragmentation and great political uncertainty in Italy ultimately outweighed the initial bullish tension over the euro, underscoring the complex set of demanding situations facing the single currency lately,” the Goldman strategist wrote in a note. “in the toolbox,” the likelihood of the ECB deploying it is “low,” he said.
The euro fell 0. 3% on Friday to $1. 0194, extending this year’s fall to 10. 3%.
Meanwhile, the yen has fallen more than 16% against the dollar this year and earlier this month touched the weakest point since 1998. Bank of Japan Governor Haruhiko Kuroda on Thursday expressed his determination to stick to low interest rates, even if that means a smaller cut slogan.
How long the BOJ can withstand the fall of the yen is an open question. Reichgott Fishman said that while interventions through the world’s largest central banks have been rare in recent decades, and when they do occur, they are coordinated, the chances of Japan doing something will be increasing if the dollar-yen rate continues to rise.
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