Posted June 29, 2010
The euro did not fare well during the Monday trading session. Financial system worries pull investors back.
Financial Worries Plague Euro
During the trading session on Monday, the euro fell significantly. Most of the loss was due to the mounting financial problems that seem to be on the minds of investors. Investors turned for safer ground during the day prior to the expiry of large scale European Central Bank lending facility that is to occur later in the week.
The massive financial concern is that the banks will need to repay Euro 440 billion in one year funds to the European Central Bank. This is scheduled to happen on Thursday. Some investors fear that the funds will cause a strain on the euro zone financial systems. Investors fear a lack of liquidity will be the result. Because of the sell off of the euro, the euro fell to an all time low against the Swiss franc. It hit the lowest level it has seen against the UK pound since November 2008 as well.
Investors were particular concerned with how much of the year long loans banks will be able to move into other European Central Bank lending facilities. The worry is that some banks, especially those who have been incredibly reliant on these loans from the European Central Bank, will struggle to make these payments.
Many experts say that a large amount of the loans that are due to be paid on Thursday will simply be rolled over into new, three month loans or may roll into one time shorter dated offers. If this is the case, many of the system problems would be avoided.
During the trading session, the UK pound improved against the euro by impressive levels. Sterling improved as the markets noted the better fiscal shape that the country is in compared to other euro zone nations. The UK budget released recently has helped to show that the UK plans to get tough on fiscal debt, which investors are happy to hear. Further, the Bank of England's Andrew Sentence stated that interest rates within the British banks are likely to be raised. That helped to offer some strength to the UK pound.
By the Numbers
During the trading session on Monday, the euro fell to 19 month lows against the UK pound, to 0.8125 against the pound. The pound improved to US $1.5121, which is a peak number it has not hit since May 6th.
By late in the day's trading, the euro moved from US 1.2388 as of late Friday's trading to US $1.2276. The euro moved from Y 110.56 to Y 109.78. The US dollar moved from Y 89.26 to Y 89.41. The UK pound moved from US $1.5062 to US $1.5105. the US dollar moved from CHF 1.0927 to CHF 1.0872. The ICE Dollar Index, which compares the US dollar to several trade weighted currencies moved the US dollar from 85.270 as of Friday's session to 85.701.
During the trading day, the euro fell as low as CHF 1.3329 before it improved slightly for the day.