Sovereign Debt Concerns Pull Euro Down

Posted May 04, 2010

In Monday currency trading, the US dollar rose against the euro. Sovereign, long term debt concerns plague the euro zone.


During the day’s trading, the US dollar looked like the brighter option with the stronger US economic data presented by officials while the euro continued to wobble on fears that the euro zone in general has too much debt it cannot pay.

US Economic News

The news out of the United States on Monday showed improving economic data. There was a strong reading within the construction spending and manufacturing sectors of the country. This is a good sign that the country is pulling out of the global recession and further towards recovery. The manufacturing activity was the strongest seen since July of 2004, for the month of April 2010. In addition, data released provided information on the construction industry showing that spending within the industry has improved in the month of March, which is the first time in five months that this spending has seen an increase.

Euro Debt Problems

Nevertheless, the currency markets were rattled by the worries about Greek debt as well as other euro zone nations. The euro fell below the psychological point of US $1.32 during the day’s trading. If it reaches below this, it could reach its one year lows that are just above US $1.31. The euro did rebound a bit during afternoon trading. Still, the currency feel by 0.7 percent against the US dollar throughout the course of the day.

Realistic Plan?

One of the biggest problems for investors is a lack of confidence in the euro zone plan for Greece’s debt concerns. Some in the market believe that the plan is not realistic or are not sure if they should believe that it is. Further, most investors believe the problem is larger than just Greece and that countries such as Portugal and Spain are already infected with stress points. These held the euro back throughout the day.

By The Numbers

By the late afternoon in trading, the euro moved from US $1.3312 where it stood last Friday at the close of trading to US $1.3203. The US dollar moved from Y93.92 to Y 94.62 during the day while the euro moved from Y 125.02 to Y 124.94 on the day’s trading. The Us dollar stood at CHF 1.0850 which is up from 81.831. The UK pound moved from US $1.5298 to US $1.5257. Against the ICE Dollar Index which compares the US dollar to a basket of currencies moved from 81.831 to 82.318.

Other News

Also important was that China’s central bank said it was ordering banks to hold back more deposits on reserve. This is the third time this year that the country has made the move. There is growing worry about inflation in the country and the surging domestic property prices there.

The Australian dollar moved up by nearly 0.25 percent against the US dollar on  Monday. However, some economists feel that China’s moves to slow its economy are going to hold back the Australian dollar from improving too much.