By Daniel Hunter
The eurozone crisis has been rumbling on for months now, and with Greece perched on the precipice of long term stagflation and increasing isolation, the picture is not pretty.
However, amongst all of the doom and gloom coming from the European Union, there is a slither of good news today (Wednesday) as the euro hit an eight week high against the dollar.
Andy Scott, Foreign Exchange Dealer at HiFX says the euro has shown that it is not a redundant currency yet.
“The Euro has staged yet another impressive recovery against some of its major counterparts over the last four weeks, proving that whilst it may be down, it’s far from out," he said.
"The single currency, which continues to face critics who say it is destined to collapse any day has clocked up gains of 5% against the US Dollar and the Japanese Yen since hitting multi-month lows last month.
“It isn’t all positive though as the Euro continues to trade close to all time lows against the antipodean currencies, and has struggled to recover against currencies closer to home such as the Pound and the Krona.
"This appears to signal that the gains are a combination of risk appetite improving and the policy statement from the Federal Reserve (January 25th) which has seen the Dollar weaken across the board.
“We continue to remain cautious of any Euro rallies until Italian borrowing costs are back at more sustainable levels and Greece looks close to approving the austerity measures preventing it from defaulting next month; the fundamentals remain weak.
“Attention will be fixed firmly on Mario Draghi tomorrow as he delivers his 5th policy statement since taking charge of the ECB. Having taken some early decisive and effective steps to ease bank liquidity pressures and funding costs, helping to stabilise the Euro and reduce sovereign borrowing costs; we expect rates to be left on hold at 1% for now.
"We do however see a good chance that borrowing costs will be lowered further as austerity measures being undertaken weaken growth across the euro zone. The Bank of England will announce their policy decision at noon tomorrow with the market expecting an additional £50bn to be added to their asset purchase programme (quantitative easing) and interest rates to be kept on hold at 0.5%.”
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