Forex Market Update: Euro Steady against Dollar despite Weak German Ifo Reading

How is the forex market? In spite of unexpectedly weak German Ifo Index, which is a gauge in business sentiment, the euro remained steady against the US dollar after hitting to a two-week low in the previous session. Nonetheless, the euro is expected to remain vulnerable in coming days as currency strategists expect the European Central Bank (ECB) to slash benchmark interest rate, next month.



The euro was trading at $1.3002 during European trading hours, having fallen as low as $1.2973 following the release of dismal PMI data on Tuesday.

Already the policymakers from the ECB have hinted at more cuts in prime lending rate in case economic indicators warrant it. The benchmark rate in the euro zone is at record low level of 0.75%.

The weaker-than-expected German Ifo Index comes just a day after when Markit’s flash Composite PMI data showed that business activities in Europe’s largest economy contracted in April.

Commenting over possible rate cuts by the ECB, a trader for a Japanese Bank in Bangkok said to Reuters, “If the Ifo is weak that could provide further data-based validation for the recent speculation that there might be a rate cut in May”.

However, some strategists expect that euro might not fall as market participants have already factored in that the ECB could cut rates to boost lending.

“Markets have moved around to the view that the ECB will cut rates. We're looking for a cut in May. So to some extent the euro is pricing that in,” said Mitul Kotecha, a Hong Kong-based head of global foreign exchange strategy for Credit Agricole, according to Reuters

Evasion of forex dues can now land you in jail

Willful evasion of forex duties may now land you in jail. The Enforcement Directorate (ED), for the first time in 14 years, has recently arrested a Surat-based diamond trader for "wilfully" evading forex duty penalties to the tune of Rs 3.99 lakh under section 14 of the Foreign Exchange Management Act (FEMA), a civil law where arrest and prison procedures are never heard of.


"This is the first time since 1999 that the agency has arrested and sent to jail someone in a case of foreign exchange violations. More such orders against wilful and chronic defaulters are in the offing across the country," a senior official dealing with FEMA cases said. The FEMA, enacted in 1999, is implemented by the ED in the country and as compared to the stringent anti-money laundering law (the Prevention of Money Laundering Act) the forex contravention cases are treated as civil in nature.

The ED action on the trader, in Gujarat's Surat, came in a case where the diamond trader illegally transferred USD 60,000 abroad in alleged violation of FEMA laws. The competent authority of the FEMA sent the businessman to three months in jail after the ED made a case saying that a number of FEMA penalty notices were not honoured by the trader despite having financial resources to do so. The agency has now decided to take help of this rarely used section 14 of the Act in order to ensure compliance in these cases and reduce the pendency of these violations piling up over the years.

The section 14 of FEMA stipulates that "if any person fails to make full payment of the penalty imposed on him under section 13 within a period of 90 days from the date on which the notice for payment of such penalty is served on him, he shall be liable to civil imprisonment." The top brass of the agency has also directed the agency's offices in the country to select such chronic default cases of forex duty violations and take strict action. "However, a defaulter under these provisions is only sent to a civil prison for a maximum of six months. The civil prisoner does not have many restrictions and strict regime in the jail as compared to a criminal prisoner. The defaulter can settle the amount and walk free before the expiry of the jail term," an official explained.