As you may recall, a meeting with Chancellor Merkel a few weeks back was a major spark in the downfall of the euro. Officials met with the Chancellor to try to come up with better solutions to the euro zone crisis, and since the meeting had essentially no outcome, the EU summit was the next step. Now, its Merkel again who is the center of a spook on the market and has sent the euro diving ever further. Traders sold the euro rapidly after the media reported on Merkel’s comments that apparently spooked many investors. This caused the euro to his a new record low versus the Aussie Dollar. As far as the U.S. dollar goes, that is not doing so well either as the market is at a stand still awaiting further testimony from Federal Reserve chief Bernanke. With no foreseeable end to this mess, want can we expect for now?
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Although Merkel went on to say she was optimistic the project would succeed – a reiteration of her usual line on the topic – euro sold off broadly.
It fell to a session low against the U.S. dollar, a record low against the Australian dollar and an 11-1/2 year low versus the Swedish crown as euro zone peripheral bond yields rose, adding to downbeat market sentiment.
Merkel’s told her own party: “We have not yet shaped the European project so that we can be sure that everything will turn out well, we still have work to do. I am optimistic that we will succeed.”
The euro fell around 0.6 percent versus the dollar, from flat on the day before the report came out, to $1.2217, close to a two-year low of $1.2162 hit last week, as traders seized on the first part of Merkel’s statement.
“Overall the picture is still very negative and the news flow of policy and data is working against the euro this morning,” said Ian Stannard, head of European FX strategy at Morgan Stanley.
Comments from the European Central Bank policymaker Joerg Asmussen over the future of the euro zone’s permanent bailout fund and Europe’s growing north-south divide also weighed on the currency, market players said.
The euro found some demand on Tuesday after U.S. Federal Reserve chairman Ben Bernanke left the door open to more quantitative easing to boost growth in the world’s biggest economy.
He speaks before Congress at 1400 GMT on Wednesday and is expected to reiterate his message from Tuesday’s testimony, in which he was downbeat on the U.S. economy but offered no explicit hints of further QE.
Some analysts said perceived riskier currencies including the euro could come under pressure if the Fed appeared to be unwilling to ease policy further. If, on the other hand, policymakers looked more likely to pump more dollars into the system, the greenback could soften.
The dollar gained 0.3 percent against a basket of currencies, but slipped 0.1 percent versus the yen to 78.96 yen.
Following the media report on Chancellor Merkel’s comments about her thoughts on the outlook for the common currency, the euro fell tremendously on Wednesday. The German Chancellor Angela Merkel stated that she was unsure that the European project would work- a comment not that, not surprisingly, alarmed investors that are already weary about the common currency.
After the comment, the euro fell to a record setting low against the Aussie dollar, a new session low against the U.S. dollar, and a decade low versus the Swedish crown. The euro zone peripheral bond yields rose, and the market lost even more sentiment of hope.
The U.S. dollar is continuing on the same path that it has been on all week. Testimony from the Fed chief has traders holding their breath, and many are expecting another round of stimulus funds to be requested as a result. This should all change by the week’s end, and the market could become even that more unpredictable.
What do you think will be the outcome of the Fed’s meeting?
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