NEW YORK – The Euro fell to a two-year slump against the dollar during the day on Wednesday, after the minutes of the meeting of the Federal Reserve (Fed) last May were released. It showed that there were imminent new bond purchases by the Fed, and that could be done only if the U.S. economic situation kept is downward trend.
During Wednesday, the euro hit a low of 1.2211 dollars from July 2010 after the publication of the minutes, but ended with a 0.1% gain to close at 1.2239 dollars. The next benchmark in the lower level is $1.20, and after that, a possible test of the 1.1875 dollar range in June 2010.
The report showed that few officials of the Federal Reserve committee, which sets monetary policy in the United States, thought it was justified to provide new stimulus to the economy. Most however were still was not convinced.
“On balance, the minutes do not suggest strong support for immediate action, although it should be remembered that the comments were made before the recent release of disappointing data,” said Peter Buchanan, economist at CIBC World Markets in Toronto.
“We doubt that the statement contains enough fiber in relation to the effort of satisfying observers who were waiting for more signals available to the Fed to launch another round of quantitative easing on signs of deterioration in the outlook,” he said.
The single currency has fallen about 5.5% so far this year, exceeding the accumulated losses in 2011 when it fell more than 3%. However, many analysts believe that it is time to buy Euros.
“Our instincts keep telling us that investors continue to sell in the progress of the Euro at present,” said Valentin Marinov, currency strategist at Citigroup in London.
The dollar index rose 0.1% to 83,450 units, helped largely by the advance of the green against the yen. In transactions in the late afternoon in New York, the dollar rose 0.3% to 79.64 yen.
The Euro also fell against most currencies, with many concerns about how officials will face a debt crisis after it seemed that there will be a quick verdict of a German court on the merits of the Euro zone rescue.
The Euro fell to a five-week low against the yen but recovered to end 0.3% higher to 97.54 yen.
The Euro fell to its weakest level against sterling since late 2008 to 78.68 pence, while touched a historic low against the Australian dollar at 1.1937 AUD.
Along with the doubts caused by the debt crisis, the Euro was pressured by the decision of the European Central Bank (ECB) to cut interest rates last week, bringing the rates on deposits down to zero.
Analysts said a new development in the returns on government bonds from Spain and Italy could push a further decline of the currency, as concerns grew about the political obstacles and skepticism about the process of making decisions in the Euro block.
The cut in ECB rates removed a pillar of support for the Euro, creating the likelihood that it can become a funding currency to buy higher-yielding assets.