Forex News: Eur soars high against the Greenback

Monday, March 29, 2010

On Friday the Euro strengthened against the US Dollar and the Pound after EU leaders agreed on a financial aid package for Greece. The deal includes funds from the International Monetary Fund and totals around 22bn Euros which could be made available to Greece should the country have difficulty borrowing money to service its high level of debt.

Against the US Dollar the Euro rose by more than one cent to $1.3422 before falling back slightly to close trading at $1.3414 before the start of the weekend. It rose around two-fifths of a cent against Sterling to close trading at GBP 0.9003 in the forex online market.

On Wednesday the Euro had fallen to a ten month low against the US Dollar amid fears a deal would not be reached after Germany indicated Greece did not need assistance. This followed close on the heels of a credit downgrade for Portugal which further weakened the currency.

The deal may allay fears that the problems which Greece has experienced could spread out to affect other countries in the Euro Zone. Following the announcement that a deal had been reached yields, that is the interest rate investors are paid on loans to the government, on Greek bonds fell slightly, an indication that investors viewed them as slightly less risky. Analysts feel the real test will come when Greece hold its next sale of government bonds which will almost certainly happen in the coming weeks. This will be a crucial test for Greece as well as setting the tone for what is to come in the Euro Zone.

According to Moody's credit rating agency, disagreement among Euro Zone partners could undermine the deal: "The key credit question is whether market confidence will be strengthened by the support package, or whether it will be weakened by the contentious conditions under which this package was agreed."

Further concern that the EU's rescue plan could fail arises from concerns that EU leaders may have underestimated how great the problems facing the Euro Zone are. This particular plan was drawn up in response to the Greek crisis, however there are many other members who are struggling, most notably Ireland, Spain, Portugal and Italy. Greek Prime Minister George Papandreou must now prove that he can keep the nations finances afloat as failure to do so could spark a fresh crisis and trigger the use of the aid package. Looking forward the Euro will remain heavily dependent on smooth market conditions in the short term to immediate future.

Across the water in the US, Friday saw the news that the US GDP was revised downward to an annualized rate of 5.6% for the last quarter of 2009. It was revised down from 5.9% according to figures released by the US Commerce Department.

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