04.19.11

Euro falls due to debt and to the US situation

On behalf of the accumulated debts that grow the concerns in the Euro Zone, the Euro continues to fall against the American Dollar since last November. The decision taken by the S&P today has counted as another factor which will lead to the decrease of the Euro as, by bringing the US credit rate outlook to negative, they have managed to turn the USD into a safe currency. Taking into consideration the fact that the situation in the Euro Zone continues to be difficult as Greece, Ireland and Portugal still have problems with their debts, the Euro is very likely to continue falling.

Today has been one of the worst trading days for the Euro since last November. The situation on the global market will probably force the Euro to apply some debt restructure measures in order to stop the anti-aid sentiment which seems to be growing. There are voices on the trading market that suggest that the S&P’s report has been just a warning, meaning that it will not have an efficient and permanent effect upon the evolution of the American Dollar. Win Thin, the head of the global emerging markets strategy at Brown Brothers Harriman, in New York, has stated that: “The key takeaway from the S&P announcement is that the U.S. has been put on notice, but no ratings action are likely until 2013. With no one expecting any serious progress on deficit reduction until after the 2012 election, S&P seems to be simply firing a shot across the bow to U.S. policymakers.” His statement is based on the fact that the US is still far from erasing its debts while the fiscal situation in the country becomes more and more tensed.

The chief economist at CIBC World Markets in Toronto, Avery Shenfeld has stated the following: “The prospect of an actual default by the U.S. on debt issued in its own currency isn’t a realistic worry, in a financial market that has a lot more real worries to deal with (including genuine euro zone default risks). We are less concerned over a downgrade to the outlook than we are about the growth implications of turning to fiscal belt-tightening before the economy has self-sustaining momentum.”

In this context, the Euro trading rate against the USD fell by 1.4 percent at $1.4234, after reaching a low of $1.4155 for two weeks in a row. This is related to the German policy concerning the Greek debt. The situation between these countries become more and more tensed as the German government forces Greece to restructure its debts till the summer. On the other hand, the Greek government has denied the fact that a debt rescheduling is to be considered imminent.

After reaching a 15-month high the previous week, the Euro’s growth has stopped. The market players expect the Euro to be supported by prospects of another rise of the interest rates in the Euro Zone. The chief currency strategist at Scotia Capital in Toronto, Camilla Sutton, has said that: “The real fear is that anti-euro aid sentiment is building across Europe, which, should it spill into countries like Germany, could have significant ramifications.”

All these factors have led to the fall of the Euro to its lowest value from the last 8 months. The EUR/JPY traded at 119.20, falling from 119.30 and it is expected to fall to the value of 115. The decreasing trading rates are to be observed in its relation with all the other important currencies.

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