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The Irish bailout plan fails to suppress fears as the euro continues to weaken
Written by article default Monday, 29 November 2010 14:44
The start of the new week with the final approval of 85 billion-euro aid package to Ireland seemingly failed to convince markets of the measures worthiness as the euro dwindled further south to a two-month low versus the dollar.On Sunday, EU finance chiefs ended their talks in Brussels and agreed to grant Ireland the package which was in line with the expected tag at 85 billion euros with an annual interest of 5.8%. The jitters are clearly seen in the market especially as the euro declined to the weakest traded versus the dollar at 1.3157 and also versus the yen to record the lowest of 110.68.
We can sense the market tensed and unconvinced with the measures adopted as eyes continue to be fixated on Portugal and Spain while also weighing negatively on the recovery prospects for the euro area. The market fears the contagion spread and the inadequacy of the package which intensifies the strain on the euro and the ECB which announces the rate decision later this week and expected more now to extend the emergency measures expiring early next year.
The fear over the weaker recovery outlook was further assured by the downbeat autumn projections for the European Commission today. They see the downside pressure still evident on the euro area form the high deficit burdened nations and the austerity measures; where the commission sees annual growth slowing to 1.5% next year in the euro area from 1.7% this year and more pessimistically continued contraction for Greece, Ireland and Spain which signals further problems in attaining their ambitious budget targets as revenue remains weak!
Seemingly the pessimistic overview continues to dominate the scene where the upbeat confidence figures from the euro area failed to stem the losses for the common currency.
The dollar held steady to its grounds and extended the gains, where the dollar index continued to gain recording a high of 80.68 after the low of 80.04. The dollar’s strength also took sterling by surprise which is struggling to maintain strong.
Positive data from the UK today from improved housing conditions and lending help offset the dollar strength, while the upgraded projects from the EC for UK growth to 2.2% next year and 1.8% for this year helped take sterling off its lows. The pair is trading nearly flat at the time around 1.5590 areas recording so far the high of 1.5645 and the low of 1.5558.
Jitters extend in Europe and the world especially with the Korean skirmish still in play. The bailout failed so far to convince markets into trusting the euro area and the fear is evidently seen with haven demand on swissy which held its grounds versus the dollar as the pair trades around 1.0012 now recording so far the high of 1.0044 and the low of 0.9985.