EUR/USD to fresh low, as ECB says the currency was resilient during the crisis
The international role of the euro remained relatively resilient during 2011, according to a report published by the European Central Bank (ECB).
In its ‘Review of the international role of the euro’ the ECB found that when compared with other major international currencies, the share of euro-denominated instruments fluctuated only marginally between 2010 and 2011.
“The share of euro-denominated instruments decreased by 0.4 % in global holdings of foreign exchange reserves when adjusted for valuation effects. With regard to the turnover in foreign exchange markets, the share of the euro increased by around 1.5%, while it dropped by 1.3% in the stock of internationally issued debt securities,” the ECB said.
In 2011, the response of foreign investors to the euro area sovereign debt crisis was different from the global shock in 2008, and investors lessened their demand for euro area securities, in particular those of the high-yield sovereign issuers.
Evidence presented in the report also suggested that the US dollar emerged much earlier than previously thought as leading international financing currency in global debt.
The research also suggested that the international monetary system might be already on its way of becoming tripolar, as the Chinese RMB is already assuming a gradually more important international role.
Meanwhile, the euro tumbled to a fresh yearly low of 1.2169 today, and EUR/USD could continue to track lower towards the end of the week as the European Central Bank “strikes a dovish tone for monetary policy”, said David Song, currency analyst at DailyFX.
“The ECB warned that the downside risks for the region ‘have materialized’ in its monthly report, and went onto say that the fundamental outlook remains clouded by ‘heightened uncertainty’ as European policy makers struggle to stem the risk for contagion,” he said.
As the downward trend in the EUR/USD continues, Song maintains a bearish forecast for the pair: “Euro-dollar looks poised to give back the rebound from 2010 at 1.1875 as market participants expect to see lower borrowing costs in Europe,” he said.