Thursday, 4 Feb 2010

ECB Rate Decision Sparks EUR Volatility

The European Central Bank left its interest rate at 1% as expected, and will probably hold off unwinding any more emergency lending measures as Greece's budget deficit takes center stage. As a result, the EUR traded near a 7-month low against the Dollar, knocked by traders' concerns over the fiscal health of peripheral Euro-Zone countries.

Investors sold the single European currency on the view that dismal finances in Euro Zone countries may hinder any economic improvements in the region, increasing the probability that the U.S. economy may recover faster. The EUR did enjoy a short-lived rebound from pressure Wednesday after the European Commission cautiously endorsed Greece's plans to slash its budget deficit over the next 3 years. But the pressure now reemerges as the focus turnes to Portugal and Spain. The EUR/USD already lost 3.7% this year on concerns that Greece and other so-called peripheral nations will be faced with increasing difficulty in curbing budget deficits. The single currency may continue to weaken, and the next price target will be around $1.3705 in the upcoming days.