The euro declined to a four-year low against the dollar in early European trading Monday, and is currently hanging around $1,23. The pressure is still downwards, as the European Central Bank declines to comment on rumors that it has already tried to intervene the forex market but failed. A sense of panic is emerging in Frankfurt and Brussels as the E.U. leaders strategy seem to backfire on every level.
“The financial markets are in the worst situation since World War Two, and possibly even since World War One.”
At 5:37am (CET) Monday morning the euro dropped to 1,22428 against the dollar – the lowest level since March 2006. Traders are now paying the highest price in more than seven years for so-called currency swaps to insure against the euro weakening.
The increasing price for protection against further declines shows the European Union’s $1 trillion in loan funds to keep members from default has, so far, have failed to persuade investors that nations will get deficits under control.
At the same time, traders say the European Central Bank and President Jean-Claude Trichet have lost credibility by shifting policies on government bond purchases that are part of the plan, according to Bloomberg News.
“The road ahead is still shaky for the euro,” Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London, says.
“The stress within the European banking system is elevated. ECB credibility has been hurt.”
UBS AG says the euro may depreciate to below $1.15.
BNP Paribas SA sees parity with the dollar by March, saying the currency’s outlook “remains bleak.”
“The euro is doomed,” Andrew Wilkinson, senior market analyst at Interactive Brokers Group LLC in Greenwich, Connecticut, says.
“The strains among the partners are becoming clear and it’s becoming harder to see global growth not being threatened by this.”
Panic In Brussels
The euro zone‘s finance ministers will discuss the parlous state of their beleaguered economies at a meeting in Brussels on Monday, after the bloc’s recently agreed trillion-dollar support package failed to prevent the euro’s slide.
This week’s meetings come amid a climate of continued uncertainty.
Initially hailed for its sheer size, senior European officials have since admitted that last week’s support package will buy little more than temporary relief for the zone’s struggling governments.
The rescue plan “has only bought time, nothing more,” the European Central Bank’s chief economist, Juergen Stark, told German daily Frankfurter Allgemeine Zeitung on Saturday.
German Chancellor Angela Merkel echoed the remarks, saying reform of the euro zone economies and better oversight were the only long-term solutions.
“We’ve done no more than buy time for ourselves to clear up the differences in competitiveness and in budget deficits of individual euro zone countries,” she told an annual meeting of the German Federation of Trade Unions, according to the EUobserver.com.
Adding; “If we simply ignore this problem we won’t be able to calm down this situation.”
Probably The Worst Crisis Ever
European Central Bank President Jean-Claude Trichet denied the euro is under speculative attack despite its steep fall, and called instead for a “quantum leap” in monitoring to ensure government budgets are kept under control
Germany’s Der Spiegel magazine quoted Trichet on Saturday as saying that Europe needed profound changes to prevent and punish misconduct by euro zone states in their economic policies.
Trichet said financial markets were in their worst situation since World War Two and possibly even since World War One.
Monday Market Snap Shots
As the euro desperately is trying to stay afloat, most European stocks are bouncing back after last weeks drop.
The price of oil and gold declines.
Here’s some market snap shots at noon, Central European Time:
The rising On-balance Volume Indicator shows increasing trades being made.
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