EUR USD Falls Sharply on Sovereign Risk Concerns
The EUR USD closed sharply lower, pressured by concerns that despite the proposal of a new budget plan, Greece lacks the means to deal with its deficit issues on its own. Fears were also being raised that the fiscal problems in Greece are not isolated and may spread throughout the Euro Region should it default on its debt. Risk aversion set in and traders bailed out of the Euro as they sought protection against the possibility of a collapse in Greece.
This morning the European Central Bank announced that interest rates would remain at 1% and stimulus intact as the economic conditions in the Euro Zone have not improved enough to warrant any changes. Although ECB President Trichet said he “is confident” that Greece would get its budget under control, traders acted as if it was going to take a bailout by the European Central Bank, European Union or International Monetary Fund to take care of the problem.
Trichet tried to calm fears of a meltdown in Greece by saying the Euro Zone still faces major issues, but he is confident it is headed toward recovery. His statement failed to prevent a further deterioration in the Euro as the focus began to shift from Greece to Portugal and Spain.
