Posted May 12, 2010
During currency trading on Tuesday, the euro struggled to keep its head above water. The markets weighted in heavily on the long term effects that the nearly US $1 trillion loan package would amount to for the euro zone.
The currency markets initially responded well to the news that there was a bailout package in the works not only for the cash strapped country of Greece but also for other countries with debt burdens. However, the country's began to worry about the long term effects on having this amount of debt and what that would mean to these euro zone countries over the longer term. The euro 750 billion loan deal information was released on Monday.
By late on Tuesday, all of the gains saw over the previous 24 hours had been wiped out. The markets focused instead on the way that the sizable debt bailout would affect the economies of these debt laden countries going forward. Monetary policy was also a concern. The problem, as many currency traders see it, is that the immediate debt default worries from Greece will be curbed and that the costs of borrowing in Spain and Portugal will become less of a problem for those countries, each of these countries still maintains a large amount of debt and their economies are either currently shrinking or they are growing very slowly. There is still a great amount of anxiety over the debt in Greece and in many of these economies.
By the Numbers
The numbers reflect the concerns that many of the euro zone members are facing. The euro moved from US $1.2804 as of late Monday evening to US $1.2694 by the end of trading in New York on Tuesday. The currency did fall briefly to US $1.31 during overnight trading.
During trading, the UK pound moved from US $1.4881 to US $1.4959 as Prime Minister Gordon Brown announced his resignation.
The US dollar moved from 1.0250 Canadian dollars to 1.0190 Canadian dollars during the day's trading. However, the US dollar did advance against the New Zealand dollar and the Australian dollar. It also advanced against various currencies from Latin America and most emerging markets in Asian countries.
Against the Japanese yen, the US dollar fell. It feel from 93.10 yen in late day trading in New York to 92.77. The US dollar moved from 1.1085 francs to 1.1099 Swiss francs during the day's trading as well.
The UK Pound
Also important for the currency market on Tuesday was the UK pound. During the day, the country's prime minister resigned, which was an indication to the markets to respond. The pound moved head significantly at the news. The resignation allows for new government to come in and make changes.
During currency trading on Tuesday, the US dollar was mostly higher throughout the day. Traders did pull away from the riskier assets including the euro looking for safer ground from other currencies like the US dollar. Traders came away from the riskier assets including emerging market currencies and from commodities.