Thursday, February 7, 2013

Today Euro At One Week Low As ECB Meets

The Euro weakened versus the Dollar ahead of an ECB meet today, and dropped from its highest level since April 2010 against the Yen, as calls for Spanish Prime Minister Mariano Rajoy to resign become more vocal and as Spain prepares to auction bonds today.

Some analysts expect today, that even as the ECB may decide to keep rates unchanged, that ECB President Mario Draghi could express concern that the economy is weak and justify a more defensive Euro zone by signalling that easing options are still available should they be needed.

The ECB has held its main refinancing rate at 0.75% since July 2011.

Spain's Prime Minister, Mariano Rajoy, is facing heated calls for him to step down amid contested reports that emerged of corruption in his party. During his time in office, he has imposed the harshest austerity measures in Spain's democratic history in an effort to reign in the budget deficit and lower Spain's borrowing costs.

Spain is also due to auction securities, due in 2015, 2018 and 2029, today. Spain's benchmark 10-year bond yield rose 24 basis points, or 0.24% points, this week to 5.45% on Wednesday.

For the moment, I expect the Euro to fall at a modest pace in the medium term for the reasons above.

The Euro dropped to $1.3509 and fell 0.4% to 126.15 Yen The Yen climbed 0.3% to 93.38 per Dollar as declining Asian stocks spurred haven demand.

Some analysts predict that the recent declines in the Yen against the Dollar may be at an end, because Japanese officials likely will view this year's more than 7% drop to be sufficient.

Rhetoric from the Japanese government seems to have shifted, albeit subtly, to convince many that it thinks it has done enough to weaken the Yen for the moment.

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