ForexNewsNow – The EU’s single currency has been facing hard times for a few days now, although it was slightly increasing in value against the US dollar today trading at 1.3687 at approximately 10:00 A.M. GMT. The euro is up 0.9% so far on the day and has reached a session high of 1.3707 and a session low of 1.3591.
The euro seems to be suffering from the consequences of both Moody’s downgrade of two major French banks (Société Générale and Crédit Agricole) and numerous swirling rumors about a possible Greece default.
The Stark effect
The unexpected resignation of German European Central Bank Chief Economist Jürgen Stark on Friday deeply affected the euro which reached a 6-month low shortly afterwards. Resignations of central bank heads are always a very panic-inducing phenomenon as was that of the Governor of the Central Bank of Argentina, Martin Redrado, in January 2010.
The markets’ reaction to Stark’s resignation underlined how nervous investors already were vis-a-vis the future of the euro zone. The current short-term volatility is intense, even if still far from the level reached in the wake of the Lehman Brother’s collapse in 2008. The longer volatility persists, the higher risks of a euro zone collapse may be.
Incomplete integration & safe havens
The main difficulty for the euro remains the fact that people are trying to attribute a value to a currency that has not yet accomplished its full consolidation within Europe, since its integration process is not yet over on the European continent.
It is no surprise that Forex investors have more faith when it comes to currencies such as the Yen even if it is currently overvalued. Moreover, the continued loss in value of the euro should accelerate the rise in value of the yen.
For the Swiss Franc, whose future is firmly linked to the euro’s now in wake of the Swiss National Bank’s decision to peg its currency to the EU’s, the current euro depreciation comes as a relief since Swiss authorities hope the Swissy will continue to lose ground against the majors following its impressive summer rise.