is a blog at International Forex Association

Now that the world has had a full day to sample and digest the G-7 strong Dollar rhetoric it seems that talk is cheap…and not particularly satisfying. At the end of the day interest rate differentials still determine, or are the single most powerful determinate of global Forex rates. So those who are hoping…and trying to will the USD to strengthen are destined to be disappointed. While fundamentals in the US are still weak and the ECB is unmoved on cutting interest rates, EUR/USD is likely to test new all-time highs within the immediate future. The ECB is handcuffed by the threat of inflation and several ECB Officials have indicated that "there is no room for EuroZone rate cuts this year." In a sign that frustration may be taking over in the EuroZone, ECB Officials have begun to claim that Euro is unfairly carrying the burden of dollar depreciation, perhaps suggesting that Asian currencies should/could appreciate further. This is a clear shot at Yen, but again talk is cheap and the interest rate differential…and more importantly interest rate volatility is clearly leading the market sentiment.

In another change in the ECB stance indicated by the G-7 communiqué, German Chancellor Merkel said on Monday that Euro strength against the dollar was "difficult for exporters." There is no doubt that Euro strength is an uncomfortable and ironic consequence of EuroZone economic stability. Until the US economy stabilizes or the ECB eases credit with the rest of the G-7, Euro is likely to continue to appreciate.