Managed Forex Accounts EUR USD Outlook 2008 1 3
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Managed Forex Accounts: EUR/USD Outlook for 2008
Summary:
Explore the 2008 outlook for EUR/USD in Forex Managed Accounts. Discover why the USD weakened in 2007, the trajectory of the US economy, and how the presidential elections could impact financial markets.Overview:
In 2007, the US dollar made headlines for its dramatic decline. Since 2001, its value fell 40% against the euro, and in 2007 alone, it dropped 13% against the euro, 10% against the yen, and 8.5% against the pound sterling. This decline was so significant that even celebrities preferred being paid in euros. As 2007 ended, the dollar's fall seemed to stabilize, but the crucial question remains: Has the dollar reached its lowest point, or will the decline continue in 2008?Reasons Behind the Dollar's Weakness in 2007
The dollar's weakness in 2007 was partly due to the global economy's growth despite the US economy stalling, driven by strong demand from regions like the Middle East, China, and India. Countries began taking more independent monetary actions, as seen when Australia increased interest rates to combat inflation while the US was cutting rates. Before December, interest rate cuts were exclusive to the US. This global economic decoupling strengthened other currencies while weakening the US dollar.
Economic Trends in 2008
As 2008 began, signs indicated a return to synchronized global economic movement. By the latter half of 2007, economic growth in the UK and Canada had slowed, echoing the influence of the struggling US economy. The US subprime mortgage crisis further affected global markets, particularly in the UK, where growth relied on housing and the public sector. The Eurozone too showed signs of strain, despite the European Central Bank's commitment to tight monetary policy.
Interest rate cuts are a crucial factor to monitor in the currency market. The US Federal Reserve lowered rates by 100 basis points in 2006, and further reductions are expected. However, if the Eurozone begins to cut rates, it could signify a major shift in the euro's outlook.
The Future of the US Economy
A pressing question is whether the US economy will enter a recession, which could heavily influence global growth. Polls from December revealed that most Americans believed the economy was already in recession, though economists disagree. A Business Week survey of 54 economists projected a 2.1% growth for 2008, slightly down from 2.6% in 2007. While the first half of 2008 is expected to be challenging, consumer spending is anticipated to persist, albeit cautiously.
The outlook of no recession hinges on continued Federal Reserve rate cuts. Despite ongoing losses in the subprime sector, consumer confidence may rely on the Fed’s actions to foster economic recovery.
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