Euro pounded by intensifying debt concerns
By Dave Shellock
Published: May 17 2010 22:45 | Last updated: May 17 2010 22:45
The euro bore the brunt of persistent investor concerns about sovereign risk yesterday as it sank to its lowest level against the dollar for four years.
Uncertainty about the impact of a potential slowdown in eurozone growth also took a toll on many equity markets, although Wall Street staged a late rebound. Meanwhile, oil touched a three-month low and base metals staged a broad retreat.
The chief focus for investors remained the currency markets as the euro’s renewed slide highlighted growing concerns about the underlying problems facing the eurozone, given the uncertainty over the ability of peripheral members’ to cut their budget deficits.
“The euro is beginning to look like a sinking ship, with markets wondering whether some of the passengers may soon be tempted to jump off,” said Marco Annunziata, chief economist at UniCredit.
“A break-up of the eurozone remains unlikely, but is no longer unthinkable. A number of investors have now to absorb a lot more information about what is going on in the euro area. This includes tail-end scenarios which just a few months ago would have seemed impossible.”
chart: Euro
The euro reached a four-year low against the dollar as concerns about the eurozone sovereign debt crisis intensified, heightening uncertainty about the region’s economic outlook
The single currency sank to a four-year low against the dollar of $1.2237 in early trading, although it subsequently managed to rally back above $1.23. Ashraf Laidi, chief strategist at CMC Markets, said the term “capitulation selling” was being used to refer to the latest bout of euro selling.
“While some definitions of ‘capitulation selling’ describe it as a point of ‘extreme selling’ – implying a possible buying opportunity – we are not suggesting the same,” Mr Laidi said. “In the euro’s case, ‘capitulation selling’ means that sentiment is not only unanimously negative, but is fixated on far lower targets from current levels.”