Euro at Multi Month Low
The euro fell against the US dollar on Monday (Feb. 8th) and remained at multi month lows due to concerns about the financial health of several EU nations. Euro sentiment remains negative among traders and investors and the euro came under even more pressure after Greek unions said they would fight government austerity measures and threatened to strike. Investors and traders were concerned that the G 7 nations issued no statement regarding currencies and did not address the fiscal problems of Greece, Portugal and Spain. European finance ministers said they would make sure Greece adheres to its budget cutting plans but many analysts say that more is needed to reassure investors. Roberto Mialich of Unicredit in Milan stated, “As long as EMU fears still loom and there is no strong signal from EU authorities that they will do something to tackle the situation in Greece, Spain and Portugal then euro downside potential will remain.”
EU Debt Concerns
The troubled euro has declined almost 10% from a 15-month high of $1.5145 achieved last November. Investors remain nervous that Greece’s fiscal troubles will spread to other EU nations such as Portugal and Spain. On Monday the euro fell 0.1% on the day trading at$1.3645. Risk appetite remains low despite last Friday’s US jobs data which showed continuing improvement in the US labor market. As usual low risk sentiment favored the Japanese yen as investors bought the yen as a safe haven. Akira Hoshino, of Bank of Tokyo-Mitsubishi said, “Market players think the yen might weaken in the longer term, but that trend has not taken hold yet. We will not see that kind of market unless market players start taking on risk and building up their positions.”
Yen Gains on Risk Aversion
The yen is near a ten month high vs. the pound and is at a seven month high against the Aussie dollar. Analysts say the Yen’s rise is due to ongoing investor concern about Greece, fears that China will tighten monetary policies and stock market declines. David Watt of RBC Capital stated, “The risk aversion emanating from Greece, China tightening fears, renewed concerns about the performance of financial stocks, and Obama’s banking plan is taking a life of its own, and the fragility of the recovery is now a market millstone.” Many traders say the yen could weaken later in the year especially if the Bank of Japan takes more steps to loosen monetary policies. Low yen rates make the yen the currency of choice for carry trades.
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