Insight: Euro-Dollar Exchange Rate

The Euro-Dollar Exchange Rate has experienced a fall over the last 6 months (1.37 to 1.27). Will this trend continue? We have reason to believe this is indeed the case. The European Central Bank (ECB) is running out of options to stimulate the European economy. Interest rates have never been this low (we even see negative interest rates). Consequently, lending money will cost you money. The ECB is unlikely to lower this interest rate even further in the nearby future and will thus have to look for other ways to stimulate the European economy. The most likely option for the ECB is quantitative easing(QE) (as done by the Federal Reserve in the US). In short, QE central banks create money to purchase government bonds. The laws of supply and demand tells us that this extra supply of Euros will cause the price of one Euro to fall. Moreover, the US Federal Reserve is cutting down on QE, causing the dollar price to go up. Hence, since market experts expect the ECB to issue a QE-plan, and the US cuts down on QE, the Euro-Dollar Exchange Rate is expected to fall even further.