FRANKFURT (AFX) - The renewed depreciation of the euro against the dollar in the first quarter is "surprising" and apparently showed the currency exchange rate is influenced less by interest rates and economic growth differences between the U.S. and the euro zone than by other factors, the Bundesbank said in its monthly report. The bank noted that the euro's value recovered by the end of last year but depreciated by early this year and dipped to 0.88 usd by mid-May.
"The renewed decline in its value was in many ways surprising," it said.
It said euro zone economic growth has been more favourable compared with U.S. economic growth, which partly accounts for the euro-dollar exchange rate.
It also said that after the U.S. rate cuts, the interest rate differential has narrowed in favour of the euro.
"The currency exchange rate development in the past months is apparently influenced less by the actual interest (rate) and growth differentials than by other factors with varying degrees of importance ...," it said.
It said these factors have influenced the expectations of market investors regarding trends in the exchange rate.
It noted for example that U.S. interest rate cuts in the first quarter were seen as a move favouring the U.S. economy, while the new economic data for the euro zone were perceived to be an indicator of existing risks in the European economy.
In contrast, it noted that the surprise interest rate cuts made by the U.S. Federal Reserve in mid-April were taken by many as indicators that the recession in the U.S. will be stronger and last longer. It said the euro was again under pressure in the first quarter after the unexpected favourable figures for U.S. economic growth.