Monday, 19 Jul 2010

Bank Stress Tests and Hungary Feud Weighs on Euro

The euro briefly rose Friday above the psychologically key $1.30 mark as the market focus switched to growing signs that the U.S. recovery could be slowing. Still, it faces significant hurdles to extend its rally from the 4-year low hit last month, and analysts say the prospect of comatose economic growth and further losses for European banks should drive the euro lower again.

The euro fell against the U.S. dollar and the yen Monday in Asian trade, hit by some profit-taking after it rose to a 2-month high Friday, amid concerns on the health of the euro zone's bank sector ahead of the release of key stress-test results later this week.

In addition, news that negotiators for the International Monetary Fund (IMF) and European Union (EU) walked away from talks with Hungary over the weekend, over differences on government budget cuts, may weigh further on the euro as Hungary is expected to join the euro zone in coming years.