Forex News: Greece Debt crisis extends upto Portugal

Wednesday, April 28, 2010

Greece’s debt crisis spread to Portugal after a pair of ratings downgrades on the two countries spooked investors, fueling a sell-off in markets across the globe while shattering Europe’s hopes on containing the crisis.

Greece became the first Euro Zone nation to have its credit rating reduced to “junk” by Standard & Poor’s, a move that will make now nearly impossible for Greece to borrow, dashing any remaining hopes of the debt-stricken nation’s recovery. Portugal, who like Greece is struggling to rein in its budget deficit, suffered a two notch downgrade. While this downgrade left its investment-grade intact, it severally raised concerns about the country’s possible tragic fate.

Following the news the Euro plunged a one year low against the U.S Dollar. The single currency fell 1.94% from its opening price of $1.34028, to hit $1.31429 in the forex online market.

News of the downgrades comes as investors were already concerned that the €45billion joint EU-IMF aid package would be delayed by an internal political struggle in Germany. Earlier this week, the German Chancellor Angela Merkel told reports that there will be no decision on aid for Greece until the International Monetary Fund works out a plan of cuts with the government in Athens. Merkel went on to say that Germany will assist Greece only after it agrees to take “tough” measures.

The Euro experienced losses across the board as fears that the Greece’s crisis had begun to spread to Portugal swept across the globe. The European currency approached a five week low against the Japanese Yen, falling 2.78% from its opening price of 125.847¥/€ to hit a low of 122.350¥/€.

The euro rebounded from a one-year low against the dollar on speculation the International Monetary Fund will provide more aid to Greece, easing concern the nation’s debt woes will spread through the region. The 16-nation common currency rose to $1.32164 in Asian sessions this morning, up 0.35% from yesterday’s close of $1.31709, after the Financial Times reported the International Monetary Fund may increase its financial assistance to Greece by €10 billion from the current €15 billion, citing unidentified bankers and officials in Washington.

European Central Bank President Jean-Claude Trichet and IMF Managing Director Dominique Strauss-Kahn will brief German parliamentary leaders in Berlin around noon today about aid for Greece, which has met with opposition in Europe’s biggest economy. The joint EU-IMF package would require Germany to provide the biggest individual loan to Greece.

A flare up of financial turmoil in Europe, caused by concerns that Greece and Portugal might default on debt, should reinforce the Fed's reluctance to close out a two-day meeting with any sign that might suggest U.S. monetary policy could soon be tightened. Later today, the U.S Federal Reserve will announce its policy decision concerning the interest rates (1915GMT).

The Fed cut benchmark overnight rates to near zero in December 2008 and in March last year promised "exceptionally low" rates for "an extended period," a vow it has renewed at every meeting since that one. While the world's biggest economy is crawling out of its deepest recession in decades, Fed officials have said the recovery remains wobbly and they have warned that the jobless rate is likely to remain uncomfortably high for a long time. Analysts predict that the Fed will opt to hold interests rates near zero.

Home prices in the U.S dipped for the fifth-straight month in February as many markets remained under pressure from foreclosures and high inventories. Meanwhile consumer confidence rose in April to its highest level since the financial struck in September 2008.

The S&P/Case-Shiller Index tracking home prices rose across 20 metropolitan areas fell 0.9% during the month of January as all but one city, San Diego, posted declines. Compared to a year earlier however, home prices rose nationwide for the first time since December 2006. Home prices in February were 30% below the peak reached in July 2006, indicating the industry that helped trigger the worst recession since the 1930s will take years to recover lost ground. A pickup in employment is needed to help stem the damage from mounting foreclosures that are restraining further gains in property values.

Confidence among U.S. consumers increased in April to the highest level since September 2008 as Americans became more upbeat about jobs, another report yesterday showed. The Conference Board’s index rose more than forecast, to 57.9 from 52.3 in March, according to the New York-based private research group. Consumer’s current assessment of the economy improved, while their expectations for the months ahead rose remarkably.

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