Euro Dips before EuroFin Meeting; SNB under Great Pressure

By TraderVox.com

Tradervox.com (Dublin) – Euro Regional Finance Ministers will meet today to discuss measures taken by the heads of government in last month’s EU meeting. The euro has reacted, touching its lowest in two years after declining for three days since the ECB decided to lower interest rates, forcing the SNB to consider drastic measures to counter. The ECB president Mario Draghi will address the European parliament today in Brussels where he is also expected to touch on the banks decision, Italy and Spain crisis, as well as measures taken to avert further deterioration in the region.

The Japanese currency increased against the euro to almost a month high, after the country released balance trade data for the month of May. Further, the yen increased as the Asian stock decline increased safe haven appetite. The Australian dollar was also down as Chinese premier Wen Jiabao indicated that the economy was still under great downward pressure. China is the largest trading partner for Australia.

According to Mike Jones, a Wellington-based Bank of New Zealand Ltd Currency Strategist, there is a great risk in the coming finance ministers meeting as cracks in European unity might arise showing reluctance in governments commitment to implementing measures agreed on at the EU leaders’ meeting. If this happens, the euro will probably lose more grounds against major currencies.

The euro declined to $1.2251 which is its weakest since July 2010, before appreciating to 1.2288 at the start of the day in London. The 17-nation currency bought 97.43 yen, the weakest since June 5, before appreciating to 97.92.

The current decline has forced the Swiss National Bank to react with Economy Minister Johan Schneider-Ammann saying that the SNB should defend its 1.20 cap and prepare for worse times ahead as euro region economy continues to show weaknesses. The minister also said that the government is considering all measures to ensure that the cap is protected including introducing negative interest rates. He, however, expressed skepticism on introduction of negative measures.

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