FX News: Renewed Fears of Contagion Weakens the Euro

FX News: Today Asian session is going flat and calm despite the huge volatility yesterday. Yesterday USD had strengthened, despite the continuing concerns over the U.S. debt ceiling and possibility of U.S. credit rating downgrade. After Moody’s Investors Service had cut Greece’s rating early this week, Standard & Poor’s Ratings Services downgraded its ratings on Greece into junk territory. As a consequence, investors’ concerns over the sovereign debt problems in the eurozone are fueled once again.
When we look at the Asian stock markets, we see lower openings today. Nikkei started the day below 10,000 at 9,936.97, previous close was 10,047.19. Hang Seng opened at 22,284.98, previous close was 22,541.69. Weak U.S. economic data and uncertainty in the U.S. debt ceiling negotiations have been weighing on the global stock markets. Managing director at Barclays Capital, Fumiyuki Takahashi said “Increasingly concerned about the possibility of a U.S. credit downgrade, foreigners are cutting back on risk positions”.

FX News: Renewed Fears of Contagion Weakens the Euro

FX News: Economists say that the austerity measures alone can not get Greece back on its feet. This fact applies to Portugal, Spain and Ireland as well. Fears of contagion resurfaced in euro zone as rating agencies downgraded Cyprus and Greece. The situation in Greece is not going any better lately. Greece is still in a deep state of financial crisis which is rapidly turning into a social one, the private sector stopped investing, unemployment rate is rising, borrowing is becoming more expensive and also banks are lending less money as interest rates are climbing.
Harvard economist Lawrence Summers said “Some significant steps were taken at the summit in Brussels and a number of fundamental issues were addressed: sustainability of debt, provision of support to banks, preventive support for some countries. But saying fundamental issues were addressed does not mean they were resolved. Clearly, there is still much that needs to be done in terms of crisis resolution and mechanisms assuring liquidity and fiscal responsibility”. There are also rumors that the IMF is also concerned about the debt crisis and it may reduce its share in financing in the new Greek rescue package.

FX News: Renewed Fears of Contagion Weakens the Euro

European Central bank president Jean-Claude Trichet’s comments didn’t do much to ease worries over the eurozone. President Trichet said that the euro has never been under threat. He said “The euro, as a currency, is sound and credible, and is not affected by the pressures on sovereign risks”. However, his statement could not stop EUR from falling against USD. EUR/USD is trading at 1.4354 by the time of typing.

FX News: Renewed Fears of Contagion Weakens the Euro

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