No EU Solution in Sight
The euro continued its decline on Tuesday as investors remain concerned that no solution to Greece’s fiscal crisis will be found at the upcoming EU summit. The euro fell against most major currencies on Tuesday as investors speculate that EU leaders may allow the International Monetary Fund to bailout Greece. European Central Bank President Jean-Claude Trichet indicated he is opposed to the low interest loans which the Athens government has requested. Greece’s debt crisis has caused a political rift in the euro zone and most analysts are pessimistic that any solution will come out of Thursday’s EU summit. Omar Eisner of Travelex Global Business Payments said, “Continued bickering back and forth between EU officials is highlighting the lack of cohesion within the bloc. That is ultimately undermining demand for the single currency.” The euro fell 0.3% vs. the US dollar trading at $1.3521 in New York. The euro fell 0.2% against the yen and last traded at 122.02 yen.
Greece’s Economy to Shrink 2% in 2010
On Monday the Bank of Greece said in its 2009-2010 monetary policy report that the Greek economy may shrink 2% in 2010, twice as much as had been forecast. Greece’s budget deficit for 2009 could be as high as 12.9%, four times the EU limit of 3%. The report also said that banks will face “serious challenges” as the nation’s economy slumps and will need to diversify funding sources as the ECB cuts emergency financing. Many experts see a further decline for the euro. According to the BlueGold Capital Management LLP the euro may fall as low as $1.20. Stephen Gen of BlueGold in London stated, “This policy divergence is one of the central pillars of my view going forward. It is one more reason for investors to be cautious about the euro.” On Monday European Central Bank President Jean-Claude Trichet said that the ECB may reassess its collateral rules softening the central banks stance regarding Greece.
Pound Falls on Rate Speculation
The pound declined vs. the greenback after a report showed that UK inflation slowed more than had been forecast prompting speculation that the Bank of England will keep rates at historic lows. Chancellor of the Exchequer Alistair Darling will deliver his budget report on Wednesday as the UK government deals with a deficit that could reach 12.6 percent of gross domestic product this year. The pound fell 0.2% against the US dollar trading at $1.5076. The UK is struggling with a budget shortfall similar to Greece’s and a stalled recovery which has kept the pound under pressure. The pound could extend losses if retail sales fall short of predictions. The UK retail sales report is due March 25th.
Quick Forex Tip: Euro currency trading requires a lot of research and investors must keep track of economic information from the twelve member nations. The economy of just one nation can affect the euro’s exchange rate. In 2010 political uncertainty and deficit concerns about Greece caused the euro to fall considerably in global forex markets. Euro currency trading can be exciting and very lucrative for investors who have done their homework.
