Friday, July 15, 2011

On Tuesday, the Euro fell to a new record low in relation to the Swiss Franc, and to multi-month lows against the U.S. Dollar and Japanese yen; all considered by investors to be safe currencies during times of economic turmoil.

The Wall Street Journal reported earlier that recent comments from the newly installed head of the International Monetary Fund, France’s Christine Lagarde, resulted in a sell-off of the Euro. At a roundtable discussion in Washington, Lagarde noted that the IMF had not yet reached discussion of terms and conditions of a second Greek bailout plan. In fact, a representative from the IMF is currently meeting with Eurozone policymakers to draft such a new proposal. The yield differential between Italian bonds and German bonds has spread to more than 300 basis points, something not seen in over a decade and evidence of investors’ concern.

Adding to the Euro’s woes is the upcoming release of the bank stress tests on Friday. The European Bankers Association said that they expect the data release to shed new light on the Eurozone’s banking situation. Representatives of several of the Eurozone’s governments, including Germany, have requested that the association consider releasing fewer specific details for fear that investor panic will ensue. The inadequacy of the capitalization rates has been an issue with the European Central Bank, whose president recently called upon Eurozone banks to make every effort to put their balance sheets in order.

For the time being at least, an unsubstantiated rumor reported by the Wall Street Journal states that the Eurozone’s central banks’ purchase of periphery debt has helped to quell the downward momentum of the Euro.