Forex weekly Analysis

Investors predict that the Euro may continue downwards to $1.30

Investors predict that the Euro may continue downwards to $1.30

Writing in the Financial Times, billionaire investor George Soros said what the European Union needed was more intrusive monitoring and institutional arrangements for conditional assistance. He said a well organized Eurobond market was desirable. “A makeshift assistance should be enough for Greece, but that leaves Spain, Italy, Portugal and Ireland. Together they constitute too large of a portion of euro-land to he helped in this way,” Soro said.”The survival of Greece would still leave the future of the euro in question.”

Broader economic guidelines are needed for to make the euro zone work, not just strict fiscal rules, Greece’s finance minister was quoted as saying on Monday.”This is not only a question of a Greek crisis, but a general European problem. We cannot have a monetary union where there is not a common economic policy that all follow,” Finance Minister George Papaconstantinou told Finnish business paper Kauppalehti in an interview.

The British pound dipped against the greenback on Monday on concerns about a weak economy and high levels of UK debt. Sentiment was also knocked by renewed concerns that an election due by June will result in no one party achieving an overall majority after the latest opinion poll showed the opposition Conservatives’ lead shrinking. Investors are worried that a hung parliament would mean the incoming government would struggle to take the tough decisions necessary to bring down Britain’s substantial budget deficit. Data last week showed a sharp deterioration in UK public finances, while Friday’s much weaker-than-expected retail sales figures pointed to a painfully slow economic recovery.

The dollar weakened on Monday as investors reassessed the chances of an earlier-than-expected interest rate hike by the Federal Reserve, prompting a degree of recovery in risk appetite. Currency markets took the Fed’s surprise discount rate decision last week as a signal the U.S. central bank was coming closer to tightening its benchmark rate, despite assurances from Fed policymakers to the contrary. But a benign U.S. inflation reading on Friday, with consumer prices rising less than forecast in January, caused markets to pull back those rate expectations, in turn provoking a cautious return to risk appetite.”There is some recovery in risk appetite, with markets believing the CPI data will help to anchor the U.S. rate curve, even though the Fed hiked the discount rate last week,” said Ray Farris, chief currency strategist at Credit Suisse.