Euro Down as Speculation of Contagion Rises

Tradervox.com (Dublin) – The 17-nation currency has weakened against most majors following a drop in German Industrial production and poor UK growth forecasts. In addition, Spain and Italy were lowered in their credit ratings hence causing concerns that the debt crisis is spreading.

The Great Britain pound advanced against the euro to a more than a month high after Marvyn King, the Bank of England Governor, indicated that cutting the interest rates may be counterproductive. This dampened speculations that the BOE would reduce borrowing cost to boost economic growth in the country. Talking about the euro, Brian Kim, a Currency Strategist in Stamford, Connecticut at Royal Bank of Scotland Group Plc said that the looking at the euro from a medium-term point of view, people are looking for economic divergence between Europe and the rest of the world which is keeping the market negative about the euro. He predicted that this might continue for the next three quarters. According to Kathleen Brooks, who is a Research Director at Forex.com in London, the euro might drop to as low as $1.2280 in the coming week.

These comments have come at a time when the euro dropped by 0.3 percent against the dollar at the close of trading in New York to trade at $1.2365, the 17-nation currency had advanced to $1.2444 on August 6, which is the strongest it has been since July 5. The euro also depreciated by 0.5 percent against the yen to exchange at 96.97 yen. The Japanese currency climbed against the dollar to trade at 78.43 per dollar, which is 0.2 percent higher than it close the previous day.

Neil Jones, who is the head of European hedge-fund sales at Mizuho Corporate Bank Ltd have forecasted doom for the euro, saying that it may drop to parity in the next one year. Another currency strategist Neils Christensen noted that there is a lot of focus on safe haven currencies which is leading to a weak euro. Neils indicated that investors are choosing safe haven currencies.

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