Euro Zone Debt Woes Spread to Spain and Portugal
Euro sentiment remains negative among investors and traders after the G 7 summit did not offer any solutions to the debt problems of several Euro Zone nations. EU finance ministers told other G 7 participants that they would make sure Greece adheres to its budget cutting plans buy analysts say more action is needed to address Greece’s debt crisis. Roberto Mialich of Unicredit stated, “As long as EMU fears still loom and there is no strong signal from EU authorities that they will do something to tackle the situation in Greece, Spain and Portugal then euro downside potential will remain.” The troubled currency has fallen 10% since it hit a 15-month high of $1.5145 last November. Neil Mellor of Bank of New York Mellon said, “We remain bears and recently revised our downside euro/dollar target, seeing a move to the low $1.30s as definitely feasible, sooner rather than later.”
G 7 Did Not Address Currency Issues
The weekend G 7 meeting did not address currency issues but there was rising support for a levy on banks to help pay for rescue of the global finance system. Last month US president Obama sparked fears in financial markets when he proposed banking sector reforms. Despite positive U.S. jobs data on Friday risk aversion remains dominant and has favored the Japanese yen as investors seek safe haven. Some believe the yen could weaken later in the year but for now risk aversion is driving the yen higher. Akira Hoshino of Tokyo-Mitsubishi UFJ stated, “Market players think the yen might weaken in the longer term, but that trend has not taken hold yet. We will not see that kind of market unless market players start taking on risk and building up their positions.”
Yen Gains on Risk Aversion
The yen gained broadly and is near a 10 month high against the pound. The yen also hit a seven month high against the Aussie dollar. Experts believe the yen could weaken if the Bank of Japan takes action to loosen monetary policy to address deflation. Analysts say that in the near term the yen may get a boost from risk aversion and euro zone debt concerns. In an interview Japan’s Dai-ichi Mutual Life Insurance Co said that this years biggest investment risk would be a rise in US interest rates. David Watt of RBC Capital stated, “The risk aversion emanating from Greece, China tightening fears, renewed concerns about the performance of financial stocks, and Obama’s banking plan is taking a life of its own, and the fragility of the recovery is now a market millstone.”
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