China Up, Euro Down
The dollar and the Euro represent the economies and long-term stability of the economies of the United States and Europe, respectively. These are not simple forms of currency, they are also indicators of economic well-being. The euro is currently sitting at a 5-month low against the dollar. For a currency that was so recently climbing against the dollar, this is bad news. China, which has experienced enormous growth over the past year that some attribute to inflation. Confidence in China for the euro is falling, and quickly.
Short-term players sold the euro after data showed China’s gross domestic product expanded 8.7% in 2009, beating market expectations for 8.5% growth. Separate data showed the country’s consumer price index was up 1.9% from a year earlier in December, exceeding expectations for a 1.7% rise and underscoring inflation concerns.
The selling drove the euro down to $1.4067, its lowest level since August 17 last year. Concern that Chinese authorities may take the most recent data as a cue to tighten monetary policy further could continue to weigh on the euro and other commodity-linked currencies like the Australian dollar, dealers said. Thursday’s indicators came a day after China’s banking regulator said it will rein in new lending this year.
The speculation about China’s tightening central bank policies will lead to more bad news, both for the economy in general and the euro specifically.