After hitting its lowest level against the dollar in four years the euro has trimmed its losses today. However investors remain troubled and confidence in the eurozone has tumbled as the question is being asked ‘is the eurozone crisis similar to the 2008 banking crisis?’
Futures traders now have a record level of contracts betting on the euro falling further, hedge funds and other large speculators piling on the pressure for a third straight week.
“Today we’re going to have to see at what moment the central banks consider that this de facto devaluation of the euro has gone far enough and at which moment the Americans won’t want to see their currency rise too sharply. We’ll arrive at that moment at a global power game over the value of currencies,” says Alain Crouzat of Montségur Finance.
The euro is the worst performing major currency this year, having shed 14 percent against the dollar. With ECB boss Jean Claude Trichet today calling for a “quantum leap” in how member states’ budgets are controlled, what will stop the rot?
“It looks like the euro will continue to fall, because we have a profound crisis of faith in the euro. The stability of the euro was based until now on the discipline of euro member states and the independence of the ECB. Both have suffered enormously in recent weeks,” says Oliver Roth of Close Brothers Seydler Bank
The crisis could be a blessing in disguise if it encourages member states to tighten rules and make the euro a much harder currency, but before that happens some rough weather is ahead for Europe’s flagship euro.