Investors Scramble for Safety and Euro Falls

Posted May 05, 2010

In currency trading on Tuesday, the euro fell below the US $1.30 level by afternoon trading. Greek fears were the main concern surrounding the sell off.


Aid Package Will Not Fix Problems

The main reason behind the sell off of the euro during trading on Tuesday was due to new concerns about the Greek debt. In particular, there is new information available that says that the EURO 110 billion package that Greece is set to receive will not restore the country’s financial systems nor will it prevent any debt concerns in other euro zone countries. The market reacted by moving towards safer ground in the US dollar and the yen as a result of these concerns.

US Economy Strengthening

Also hurting the euro during the day’s trading was the good news about the US economy. Although oil prices were significantly lower and US stocks dropped for the day, the US Treasury helped to give currency investors reassurance. The information out implied that the Federal Reserve may be able to raise interest rates sooner than other central banks around the world, including those in Europe and in Japan.

One index had the dollar hitting a 12 month high. However, the US dollar did fall slightly against the yen. The yen is widely considered a safe haven for investors. The dollar was able to remain at a five week high against the UK pound. This came as investors were concerned that the general election to take place on Thursday will not have an outright winner. Some investors are concerned that Parliament will be unable to turn around the country’s deficit, which continues to grow. This could cause the credit agencies to lower the sovereign credit rating in the UK.

By The Numbers

During currency trading on Tuesday, the euro moved from US $1.3191 as of late Monday to US $1.3004 by the end of the day Tuesday. It fell to as low as US $1.2993 during trading, a number not seen since April of 2009. Investors concerned about the euro said that any drop below US $1.30 would open the opportunities for the euro to continue to fall even as low as US $1.25.

The US dollar moved from Y 94.59 to Y 940. The euro moved from Y 122.74 to Y 124.80. The dollar moved from US $1.5249 as of late Monday to US $1.5175, though it fell to a low point of US 1.2091 during the day’s trading.  The US dollar moved from CHF 1.0861 to CHF 1.1005.

The ICE Dollar Index also showed some fluctuation, which helped to increase the interest in the US dollar. It moved from 82.370 to 83.290.

Australian Dollar

In currency trading on Tuesday, the Australian dollar fell by 1.8 percent against the US dollar. The Australian central bank had tried to intervene by hiking interest rates 25 base points. The currency moved from US $0.9263 as of late Monday to US $0.9097 b the end of the day’s trading.