Bad week for the euro as investment fails to surface

Currencies Direct October 29th 2012 - 2 minute read

The week beginning 22 October has been a very poor one for the euro's exchange rates, as the single currency suffered fall after fall, with investors failing to back it in a market where financial problems have been rife. Fears that the economies in Spain and Greece are going to worsen rather than improve has kept people from spending on it.

On Friday, the euro fell for a fourth day in a row against the dollar, after seeing a decrease in the EUR/USD rate to 1.2920 on Thursday. It had been hoped that the euro would hold firm on Friday and avoid dropping to 1.915, however, it saw yet another fall to see its overall weekly movement drop by 0.7%.

This means that the currency has now finished the week at a level of 1.2881 against the dollar. This is the lowest it has sat since 11 October. Fears that Spain is going to introduce more measures to battle austerity has been the main reason behind investors ducking out, with a bail out likely, and confidence in putting money into the currency remains very low.

Lutz Karpowitz, foreign exchange strategist at Commerzbank, told Reuters: "People are still concerned about Spain asking for a bailout and Greece remains a problem too. I remain bearish on the euro."

Elsewhere this week, the pound has proved bullish in the market, thanks to the fact that the UK showed signs of recovery. On the back of three-consecutive quarters of falls in the British economy, the exchange rate held firm when it was confirmed on Thursday that the country had come out of recession with a welcome return to an expanding gross domestic product (GDP).

With Bank of England Governor Sir Mervyn King also announcing on Tuesday that the organisation was opposed to further quantative easing, investors bought into the pound to see the GDP remain firm after a 0.5% fall to1.5938 against the dollar at the close of play on Tuesday.

By the end of Friday, these relative positives for the UK had seen it hit a three-week high against the struggling euro, with investors trimming their bets against the eased fears of quantative easing. This saw the weak single currency sit at 80.02 in terms of its exchange rate against the resilient pound.

With regards the dollar, it has been reported that in spite of good figures in the latest GDP reports, which saw the economy rise by a total of 2%, following rises of 1.3 and 1.9% in previous quarters, the currency fell on Friday against the yen.

The Japanese currency had seen a four month low on Thursday against the dollar, however it recovered once again on Friday's trading to see just a weekly rise of 0.4%, following on from a 1.1% rise one week ago.

"Dollar/yen has risen well ahead of itself in the past few weeks and while on a multi-month basis we expect it to rise, there will be some profit taking in the short term to smoothen out the move," said George Saravelos, G10 foreign exchange strategist at Deutsche Bank.

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