The Euro Continues Seven Week Gains
Following the G-20 Summit in Toronto, euro zone members continued to execute their commitment to concentrate on debt reduction as well as improving financial transparency. While investors have awaited release of the criteria to be used in the much-publicized stress tests, the euro has shown a steady increase against the dollar.
Since falling below $1.19 for the first time in four years, the euro has made a steady push toward recovery. On Tuesday, the currency crossed the $1.2663 threshold and appeared steady despite news that Germany, the zone’s largest manufacturer, reported an unexpected slowdown in factory orders.
The news from Germany was outweighed by the success of the Spanish debt sale on Tuesday. Combined with low consumer confidence projections from the States and further bad news on the employment front in the U.S. short-term confidence in the euro continues to rise. The euro has had a seven-week winning streak against the dollar.
Euro zone regulators are walking a fine line in deciding what details to release about the upcoming stress tests that will be applied to 91 of the zone’s largest financial institutions. German Chancellor, Angela Merkel, who has become a strong spokesperson for the euro and the European Union, sees the euro in a much-improved position since the effects of the crises in Greece first evolved.
Last week, the sector was able to repay 442 billion euros n emergency loans, a feat considered unlikely just tow months ago. The repayment only required minimal assistance from the European Central Bank.
Stress Tests To Be Released Later in Month
European Central Bank President, Jean Claude Trichet, will face the media on Thursday. Trichet will be under pressure to convey more information about the tests than he has been prone to do. At present, lenders can decide what results to publish, a policy transparency advocates oppose.
German Finance Minister, Wolfgang Schaeuble, has said that Germany can deal with publication of results. Not all euro zone members are up to that task. Chancellor Merkel affirmed Schaeuble’s pronouncement and added:
“The euro has stabilized. It’s an important signal that banks are carrying out stress tests and that we’ll have more transparency the system. And, it’s pleasing that, in contrast to the spring, nearly all countries in Europe are now saying we have to reduce deficits and introduce structural reforms. Once the measures that we’ve agreed have been completely implemented it’ll mean the euro will be on stronger foundation than before the crisis.”
As the Obama Administration insisted at the G-20, the euro zone needs to not only concentrate on debt reduction but must maintain a commitment to growth. Merkel may have it right about the zone’s positive direction in terms of austerity cuts but without growth, the zone has inherent weakness. For this reason, many analysts project a steep fall for the euro prior to year’s end.
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