Euro is pulling back today as concerns about sovereign debt continue to dominate the conversation about the eurozone. Additionally, general risk aversion concerning the state of the global economy is weighing on the euro.
One of the biggest factors affecting euro performance is still sovereign debt. Now, though, the concern is taking a new form. With special financing from the ECB, many banks in embattled countries have bought sovereign debt. For example, banks in Spain and Italy have used special financing to purchase bonds from their own governments.
On the one hand, this move has been helpful in bringing down borrowing costs. On the other hand, though, this means that the banks are more heavily exposed to the sovereign debt that could bring governments down. The situation is one that is somewhat tricky and difficult, and one that has many concerned about what’s next for the eurozone — especially if troubles in Spain and Italy bring down banks as well.
Additionally, a general feeling of risk aversion is strengthening today. Concerns about the US economy, and the global economy, are once again coming to the fore, and that means high beta currencies like the euro are heading lower.
At 13:13 GMT EUR/USD is down to 1.3057 from the open at 1.3103. EUR/GBP is down to 0.8232 from the open at 0.8245. EUR/JPY is down to 106.2220 from the open at 106.8150.
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