Lack of clear policy threatens the EUR

The EUR fell against the USD overnight because investors are concerned about the deteriorating economic situation in Europe. These concerns were heightened yesterday when Germany’s Chancellor Merkel said “I will not allow Germany to participate in any speculation.” ie : Germany will not promise to offer financial support to those insolvent countries in the eurozone.

Merkel’s announcement caused traders to sell the EUR moving the situation within the Euro Zone from bad to worse. Investors are worried about the financial soundness of several Euro Zone countries including Greece and Ireland and Eastern Europe countries like Hungary and Ukraine. As a result the EUR is declining. Towards 07.00 GMT this morning the EUR stood at 1.2594 USD a fall form 1.2673 USD overnight. Against the JPY, the EUR fell to 118.56 from 119.35 overnight.

Several Central European currencies have experienced a sharp decline in recent weeks because of concerns about the status of the banks in these countries and fears of massive capital withdrawals.The bleak outlook within the Euro Zone is exacerbated because despite these growing concerns, governments have not adopted any significant budgetary measures. There is a lack of clear policy direction which only reinforces concerns about the recession and weakens the EUR.Elsewhere : In the U.S. the dollar was supported by the rise in producer prices in January, increasing by 0.8% compared to December after five consecutive months of decline.