The Euro has fallen against the Dollar for the third day in a row after hitting a two week low yesterday. Investors are remaining cautious ahead of tomorrow’s key EU summit with most expecting no new plan to be unveiled.
Despite the rhetoric of several European leaders that the meeting will be make or break for the single currency, confidence remains low that no solution to the euro crisis will be implemented.The issue of Euro Bonds is expected to be raised yet again but there is little to no chance of French president Francois Hollandes main strategy being implemented. The Germans are firmly opposed to the suggestion with the Nations chancellor Angela Merkel saying that she wouldn’t allow the measures for ‘as long as she lived’.
The Euro would probably have been trading at lower levels than what we have seen today if it was not for investors being reluctant to sell their Euros in case any headway in solving the crisis is made.
“Merkel continues to paint the newswires with her thoughts on the EU way forward as the Eurobond concept does not appeal to her still and the EU blueprint seems a little off in her eyes,” said Brad Bechtel, managing director at Faros Trading. “I don’t think we will get anything substantive out of the EU summit and neither does the market after having been told as much over the past several days by EU officials.”
Other traders said a roadmap toward a common banking union or a decision at the summit to activate the euro zone’s rescue fund to start buying Italian and Spanish government debt and lower their borrowing costs could provide relief to the euro.
Yesterday the Pound broke through the 1.25 region against the Euro and briefly reaching a four year high against the single currency. The news that Cyprus has become the fifth European country to seek financial aid has led to investor’s seeking safe havens as the fear of contagion continues.
The outcome of tomorrows EU summit will have a profound effect on the Pound Euro currency pair as if a plan is agreed upon we could see the Euro make gains as confidence returns. If no plan is agreed upon then it is likely the Euro will suffer further losses.
It is predicted that a positive outcome could see the Pound add to its small gains it made against the US Dollar. It rose from the 1.53 level at the beginning of the month to 1.565 this morning. A good result from the summit could see it make further gains to the 1.58 level.
European Union Commission President Jose Manuel Baroso warned that the debt crisis is‘the biggest threat to all that we have achieved through European construction over the last 60 years’. He warned but didn’t propose a genuine new solution, all his comments did was stoke the fears of investors regarding the potential for a fully-blown debt meltdown in the Eurozone.
The Pound to Euro exchange rate is currently trading at 1.248
The Pound to US Dollar exchange rate is currently trading at 1.556
The Euro to Australian Dollar exchange rate is currently trading at 1.237
The Euro to US Dollar exchange rate is currently trading at 1.246
The Euro to Pound exchange rate is currently trading at 0.800
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