For Yet Another Day Euro Under Fire

Added: May 13, 2010

During currency trading on Thursday, the euro as well as the UK pound were under extreme pressures from investors. The biggest factor affecting the markets on Thursday was the negative, likely effects of these huge national deficits.

Euro Fall

During the day’s trading, the euro fell to its 14 month lows again against the US dollar. Investors seemed worried about the way that government spending would affect the growing, though slower growing than expected, economies around the world. In particular, concerns centered on what would happen within the euro zone countries of Spain, Portugal and Greece when the government slashed its spending in an effort to reduce deficits.

It is also not helping that many of these governments do not have the backing of their citizens for the plans in place. This is making investors nervous. For example, in Greece, while the government is implementing changes and utilizing borrowed funds, many Greeks are not on board with the plan.

UK Pound

However, in other countries, including the UK, the pressure was on to reduce deficits. The UK pound struggled during the day because of concerns about government spending levels with investors expecting to see reductions take place.

The political unease present in much of the UK in recent weeks seemed to abate during the trading session on Thursday.

Dollar, Yen and Swiss Franc

Because of the nervousness in the marketplace, the US dollar, the yen and the Swiss franc all did well during trading for the day. The fact is, the long term fundamentals for the overall euro zone and the UK pushed these other currencies, as they are all seen as safety nets as a whole. The Swiss bank has not intervened but has made notice that it will intervene in the markets if the currency appreciates too fast.

By the Numbers

During currency trading on Thursday, the euro moved to 14 month lows for yet another session. By midday trading, the euro had moved from US $1.2629 on late Wednesday to US $1.2564. The euro moved from Y 117.69 to Y 116.57 during the day’s trading. The US dollar moved from Y 93.17 to Y 92.77. The UK pound moved from US $1.4826 to US 41.4650. The US dollar moved from CHF 1.1110 as of Wednesday to CHF 1.1149 during trading on Thursday.

The ICE Index, a measurement of the US dollar against a basket of currencies moved from 84.848 to 85.167 during the trading session.

In terms of the euro and the Swiss franc, the euro moved to CHF 1.3997 briefly during the early morning trading out of London. This is farther below the euro’s previous low against the Swiss franc, which stood at CHF 1.4005 and was set on May 6th. This does move below what investors call the psychological level of the Swiss National Bank’s tolerance limit for the CHF which is set at CHF 1.4000 previously. However, the Swiss franc did move up to CHF 1.4007 recently. The Swiss market was closed during trading on Thursday due to a national holiday in that country.

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United Euro-Zone?

Posted by Jeanine O'Reilly at May 18, 2010 01:31 AM

The European Union says that Greece will not exit and that it’s not even a possibility. I am not so sure about that because the new bailout program is not large enough to solve Greece’s problem in the long-term. Greece could still default on its debt, and then what? It would be unable to find lenders bringing the economy to a grinding halt. The country would not be able to print its own currency. There is no central bank.

Not only could Greece end up pulling out of the Euro-Zone, countries like fiscally responsible Germany could eventually pull out too. The Germans are angry about the Greece debt bailout. Greece basically lied to get into the Euro-Zone and now Greece is dragging down the euro. Germans, on the other hand, are graciously accepting higher taxes and spending cuts to reduce its country’s debt.

No one really knows where all of this headed. The public talk about the Euro-Zone remaining united just might be a front.