Euro recovers from 2-year low, but hopes remain fragile

Having touched today a 2-year low of 1.224 against the dollar, the euro recovered climbing back to 1.23 in the evening, but remains vulnerable as investors contain their hopes that the meeting of eurozone finance ministers today and tomorrow will be able to give effective answers to the European debt crisis.

“The euphoria that followed the EU summit last week proved to be very short lived. Spanish 10-year bond yields breached the important 7% mark and yields on German two-year bonds, regarded as the safest sovereign debt in the eurozone, turned negative last Friday on the back of safe haven investor flows,” said JP Morgan Private Bank in its foreign exchange update.

Having lost more than 3% against the dollar last week, the euro may have scope for a temporary rebound, but pressures on the European currency remain strong, according to strategists.

The fall in euro strength against the US dollar and the pound reached a low, said Clear Currency and GBP/USD also fell as sterling was sold off against the safe haven dollar amongst a significant lack of risk appetite in the markets.

“Today sees the eurozone finance ministers’ summit which is expected to hear officials begin the implementation of last month’s June EU leaders summit framework. The Spanish bank revival programme is likely to play a major role in the proceedings with operational details to be ratified with any positive developments potentially causing a bounce in the euro and other sentiment linked currencies,” strategists at ClearCurrency added.

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