End of Quarter Approaches as Investors Hold Euro Strong

Posted March 30, 2010

As the end of the first quarter comes to a close, the euro begins to rebound. The US economy is strong as is the Australian dollar in trading Monday.

 

Currency trading on Monday proved to be another strong day for the euro. The Greek’s ability to raise funds to pay down its debt was one factor playing a role in the strength of the euro on Monday trading. In addition, investors also pared some of the record short positions head as the first quarter ends this week.

Currency traders have built up short positions against the euro in the last few months as concern over the euro played a role in decision-making. However, investors believe the euro is likely to see some support as some of those positions are unwound before the March 31st quarter end.

In the Asian currency market, the euro was about to reach $1.3506 in Monday trading. This was up from the $1.3477 it was at in previous trading. That is a gain of 0.5 percent. Last week, the euro hit a ten month low at the point of $1.33. Monday’s trading was significant because it was Greece’s return to the capital markets. That marks the first time since the euro zone leaders agreed to provide Greece with financial security.

Greek’s financial bailout came in the form of a loan. The country’s debt management agency said on Monday that it sold 5 billion euro, or nearly $6.72 billion US dollars, on a new seven-year debt with a rate of 5.9 percent. When that is factored, it comes to more than two times what Germany pays.

A variety of factors plagues investors with the euro. Analysts do see a benefit in the euro. The euro zone does have debt problems throughout, which extend farther than just Greece, many believe. In addition to this, the euro zone is plagued with weak growth. However, this also factors into the European Central Bank not being in any rush to increase interest rates in the near future.

The US dollar, on the other hand, is in a different light. Most investors believe that a strong US economy is in the process of building and later this week they will find out more clearly as payroll data is due out this week. It is expected that this data for the month of March will show that US employers have added 190,000 jobs in that month alone. Further, a report issued on Monday provides information that states that consumer spending in the United States increased for the fifth straight month. However, the Federal Reserve is unlikely to raise rates at least until the second half of the year.

However, news out of Australia suggests that the Reserve Bank of Australia is likely to raise its interest rates to 4.25 percent. The dollar stood at 0.9169 against the US dollar on Monday trading, which is the biggest one-day improvement in six weeks. The news of the likely interest rate increases is what spurred currency traders to turn towards the Australian dollar. The higher commodity prices also spurred the movement of the dollar in Monday’s trading.

 

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