Euro Gains in Early Trading
The euro pulled back from a ten month low against the US dollar in advance of the EU summit where European leaders are expected to discuss aid for Greece. The euro gained after Luxembourg Prime Minister Jean- Claude Juncker said that aid for Greece will consist of a combination of IMF “instruments and bilateral loans” designed to aid Greece. Differences in the EU still exist over whether to offer EU aid to Greece and what role the IMF will play. Some experts believe that turning to the IMF could hurt the credibility of the euro zone and create the impression that the EU is incapable of dealing with its own internal problems. Matthew Strauss of RBC Capital Markets in Toronto stated, “The uncertainty is hurting the euro. Turning to the IMF could complicate the situation because IMF assistance comes with a number of strict conditions, both on the fiscal and monetary sides. Net-net, it’s negative for the euro if the euro zone cannot solve the problem on its own.”
Investors Hesitant
In early New York trading the euro gained 0.3% trading at $1.3350. Investors remain hesitant in advance of the EU summit. Niels Christensen of Nordea in Copenhagen said, “There have been some very rapid moves in the last 48 hours and everyone is a bit hesitant now. People want to get the EU meeting out of the way before trying to push euro/dollar lower again.” On Wednesday ratings agency Fitch downgraded Portugal’s sovereign debt rating reminding investors that Greece’s problems could spread to other Euro Zone nations.
DisagreementAmong EU Leaders
As head of Europe’s largest economy German Chancellor Angela Merkel is pushing for an IMF solution for Greece’s debt crisis. Some EU leaders disagree saying that the EU should handle its own problems. Spain’s Jose Luis Rodriguez Zapatero believes that an internal solution will lend credibility to the EU and its multi nation currency. Most observers believe that any solution to Greece’s problems will involve a combination of EU loans and IMF aid. Speaking to reporters Greek Prime Minister George Papandreou stated, “We will move ahead whatever decisions are taken. Greece is determined to deal with its own problems,” he said, adding that “we are on the right track.” The Athens government has implemented tax hikes and wage cuts in an attempt to reduce Greece’s deficit to 8.7% of GDP this year. Greece’s 2009 deficit amounted to 12.7% the highest in the euro’s history.
Quick Forex Tip: Political conditions play a major role in global currency trading. Political instability can cause a currency to lose value. Recently political problems and deficit concerns in Greece caused the euro to fall in global currency trading centers. Market psychology although difficult to define can also affect market perceptions and can either help or pressure currencies.
