Euro To Experience Turmoil as Debt Crisis is Reignited

By TraderVox.com

Tradervox (Dublin) – Some economists and analysts have claimed that the euro is set to encounter weakness as the debt crisis is reignited by the austerity-driven spending cuts in Italy and Spain. They have claimed that the euro zone may be dragged into a recession which might reverberate to the rest of the world. There are some currency strategists who have indicated that the euro will drop by more than 5 percent through the year.

Fears on the rise of the borrowing costs of Spain and Italy were spurred by European Central Bank President Mario Draghi who indicated that the euro zone economy faced a downside risk due to these two countries current debt situation. Moreover, some analysts have indicated that the effects of the LTROs have faded and the economy may face some hard time in the second quarter. According Nick Bennenbroek who is a renowned currency strategist, the reason why the euro gained in the first quarter was because of the enormous progress made in dealing with the Greece debt crisis. However, now that the Greece crisis seems to be on the rear view, the market has shifted the attention to other peripheral countries such as Italy, Spain and Portugal.

In the Asian session, the euro increased against the greenback by 0.2 percent to trade at $1.3131 and gained against the yen by 0.1 percent to trade at 106.90 yen. The sentiments from the BOJ that it would not add stimulus may be seen as the reason for the increase of the euro against the yen while negative sentiments and the lower than expected NFP data has pushed the dollar lower against the euro.

The euro has gained 2.95 percent over the first quarter of the year mostly due to the successful international bailout of Greece. The LTROs provided by the European Central Bank have also aided the 17-nation currency to gain over the first three months. However, this effect will continue to fade in the coming months hence pushing the euro to the downside.

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