Euro suffers on threat of ongoing debt concern
The EU governments â‚¬85bn package has as expected failed to ease growing concern over the rest of Europe’s finances. The Euro’s stock, bond and currency markets all attest to this and will undoubtedly continue to suffer this week. Eurpoean stock markets have fallen 2% today as traders are becoming increasingly risk averse. The effect of the Irish crisis on the stock markets and subsequent risk appetite has seemed to have rippled accross the Atlantic as US stock markets have declined also. Safe haven currencies such as the USD have benefited with cable now progressing to a two month low at 1.5527. EUR/USD looks set to move back into the 1.20’s as pressure mounts on the Euro each day.
Greece let its budget deficit get out of hand and Ireland fell prey to the housing market crash, Portugal could be next suffering from it’s lack of competitiveness in all sectors. Economic growth in Portugal is at less than 1% in the last decade. This is a growing concern alongside Spain, the Eurozones fourth largest economy. Of course the finance ministers of these countries maintain that there is not a problem. Yet up until a couple of weeks ago Ireland maintained the same stance. It is for this reason that the market participants take official comments from these regions with a pinch of salt.
Risk aversion will most likely be the main driver of price action this week due to war concerns in Korea and debt contagion fears in the Eurozone area. Sterling will probably suffer this week as the UK banking sector remains significantly exposed to the problems in Ireland.
The ECB holds its last monetary policy meeting and press conference of the year on Thursday. Markets will be looking to this event to see if the central bank will further scale back its liquidity support measures and answer questions on the sovereign debt issue. Trichet will offer testimoney to parliament tomorrow which should also be a significant point of interest.
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