All Eyes on ECB As Greece Drops Further Into Recession

Greek banks flagAs Greece slips into an ever deepening recession with unrest and protests reported across the country, the fate of the Europ hangs by a thread. With increasing risk of a Greek default, the Euro may slip against the dollar from its current high of 1.298/dollar.

Euro against dollar

After a brief rally that surged the Euro to 1.298 against the dollar, the looming threat of an European recession spurred by failing austerity measures in Greece and Spain has once again triggered a downward spiral of the Euro against the dollar. The coming few weeks will be crucial for forex traders are European leaders and policy makers look to extend the deadline to Greece to meet its budget targets.

European Stability Mechanism

There is also speculation in the market that the European Central Bank (ECB) might unload its debt to the European Stability Mechanism as it grapples with the threat of another major credit crisis. The outlook for the European region continues to be grim, and there is increasing pressure on the ECB to expand its monetary policy further to stir growth in the region.

Borrowing costs are already as low as they possibly can be, most ECB officials argue. Yet, that hasn’t stopped speculation that ECB might double down and reduce borrowing costs even further to expediate growth in recession hit countries.

Mario Draghi – President of ECB

This is a very important news to watch out for forex traders as lowering of borrowing costs may wipe away the gains of the EUR-USD rally as traders increase bets for a cut in interest rates. All eyes will be on Mario Draghi, president of ECB, as he announces ECB’s policies going into October.

Stagnant growth rate in England

Across the channel in England, there is growing alarm over stagnant growth rate that has affected businesses across the country. The GBPUSD consolidated to 1.6168 as traders wait and watch before placing bets on the monetary policy to be adopted by the British Chamber of Commerce.

By all indications, the Bank of England will continue its current policy of easing interest rates to stimulate growth, but this might change given the country’s quick incline towards double dip recession.

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