Euro Falls As Greece Struggles to Reduce Budget Deficit

Posted January 17, 2010

The euro fell against most global currencies as the European Union finance ministers meet to discuss Greece’s budget deficit. The Australian and New Zealand dollars fell against the US dollar. The Canadian dollar fell against the US dollar as gold and oil prices dropped. The Mexican peso remained stable after the central bank kept interest rates the same.


The UK pound rose against the euro on a weekly basis last week as the Bank of England decided to let its bond buying program end. Sterling ended the week at 88.57 pence per euro.  Then sterling advanced its gain on Monday morning as UK housing prices rose. Sterling was at 88.03 per euro.

The euro fell over the weekend against the US dollar to $1.4342 which was a one-week low. The reason for the decline was mostly related to concern over Greece. Though Greece says it will not default on its debt and has a budget deficit plan, investors remain worried about the impact of Greece’s deficit on the Euro-Zone’s recovery.

The European Union (EU) finance ministers are meeting starting today and Greece is the main topic. The EU has already made it clear that speculation Greece might drop the euro as its currency is far out of line with reality. But what is real is the fact investors cannot have full confidence in the ability of the Euro-Zone to fully recover economically until Greece’s budget deficit is made manageable. In addition, the European Commission has publicly stated that the data Greece is using to calculate its deficit is very irregular which implies the situation is worse than is being reported by Greece.

The euro fell against the yen to 130.22 yen.

The Australian dollar fell against the US dollar to 91.93 US cents. New Zealand’s dollar also fell to 73.35 US cents. The release of China’s economic data this week is sure to have an impact on the two currencies.

The Canadian dollar weakened against the US dollar to C$1.0234 on Friday. On the previous day it hit the strongest level it has reached since 15-October-2009 at C$1.055. The loonie weakening was due to drops in crude oil and gold prices. Gold has fallen to $1,131.63 per ounce and oil has fallen to $77.70 per barrel for February delivery. Oil was over $82 a barrel just recently so the price has fallen swiftly.

The US markets are closed Monday for a holiday.  Investors are currently moving into less riskier assets which is pushing the US dollar up.

The Mexican peso remained stable after the central bank voted to keep the benchmark interest rate at its current level. The peso is at 12.6825 against the US dollar. The peso has strengthened by 3.2 percent against the US dollar this year. Analyst predictions are that the interest rate will be increased in July of this year.

This week investors and analysts are watching for US business earnings reports and Chinese data. China’s growth rate for the 4th quarter of 2009 is expected to show it is already over 10% and confirmation of this fact, and retail and industrial growth, will provide direction for emerging markets.