Euro Hurts as US Dollar Gains

Added: May 05, 2010

In currency trading on Wednesday, the currency markets continued to worry about the increasing risks of the euro debt. At the same time, investors turned to the US dollar as a safe haven.

Canadian Dollar

The Canadian dollar ended lower on Wednesday, mainly due to the world’s global traders turning to less risky investments such as the US dollar. Risk aversion remains the driving factor with most currencies today. The Canadian dollar fell to points that it has not seen in nine weeks. However, it was able to make a slight rebound by the end of trading, though the stock markets trimmed of their losses late in the day.

During trading on Wednesday, the US dollar moved from C $1.0280 to C $1.0315 by the end of the day’s trading. It was at C $1.0242 as of late Tuesday. The US dollar registered a high session of C $1.0353. This is the highest level that the US dollar has seen since March 3rd.

The Euro

The euro fell against the US dollar throughout trading during Wednesday. It also fell against the yen in Asian trade. The main problem behind the debt crisis here is the worry that the euro zone is still facing turmoil and that the sovereign debt problem is not contained by the bailout package designed for the needy Greeks. Investors are unsure that the country will be able to carry out the required and harsh austerity measures in place to obtain the euro bailout of EUR 110 billion. Spain and Portugal may also need bailouts and those countries are likely to need an even larger bailout than what Greece required.

Risk aversion was center stage in trading and it came back throughout the day. Investors are returning to concerned levels by moving to the US dollar and the yen for safety. The euro closed at US $1.2816 by the end of trading in New York on Wednesday. Many investors are calling the fall of the euro a violent move and that it is very shocking. Against the US dollar, the euro is down by 0.8 percent and as much as 1.2 percent down from trading against the Japanese yen for the day.

Investors believe that it is possible for the currency to drop to US $1.25 within the next few weeks unless traders can be reassured that some type of debt plan is available to protect and improve concerns not only for Greece, but for Spain, Portugal, Italy and other countries with potential debt concerns.

Brazil Real

Also notably shaken by the Greek debt concerns and euro zone worries was the Brazil real. The real fell on Wednesday against the US dollar. The change in value comes from worries that the Greek debt problems will spread to other euro zone countries, worsening the problem. The real moved to BRL 1.797 against the US dollar in trading on Wednesday. That is a move from BRL 1.759 against the US dollar on Tuesday where it closed. This a drop of two percent during the day’s trading.

Document Actions

Greece Problems Not Solved

Posted by Jim Kelley at May 18, 2010 01:31 AM

The United States had better watch and learn as the Greece fiasco unfolds. The massive debts in the Greece and the heavy reliance on government workers in its economy is not going to be solved even with the current IMF and Euro-Zone bailout. It has taken decades for Greece to get to its current financial condition and the bailout really only helps the country meet its upcoming debt payments. It’s commendable that the government is trying to cut government spending, but it seems there is a culture there that has encouraged lack of economic activity and tax cheating. That is not going to be easy to change. That is one reason some analysts do not think this current bailout can save Greece fast enough to help the Euro-Zone.

Yes, the U.S. can print money and the federal government is only about 20% of the economy. Greece can’t print money and government spending is about 40% of the economy. But the U.S. debt is now over $13 trillion and reaching the point of no return because of massive entitlement programs. The U.S. dollar looks safe right now, but for how much longer? One of the things propping it up right now is the Euro-Zone problems. What happens when those problems are solved? Will the U.S. dollar come crashing down? Food for thought...