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Euro Update - Debt Issues Remain for Single Currency

February 9, 2011 - Written by John Cameron

Eurozone sovereign debt issues continue to cast a shadow over the Euro, with uptake for recent bond auctions in Ireland and Spain causing concern amongst analysts. European Financial Stability Facility Chairman Klaus Regling is due to make a set-piece speech later today. This will be closely watched by institutional investors who hope that he will suggest positive action by the EFSF to guarantee distressed assets in Ireland, Greece, Portugal and Spain, in particular. So far, the EFSF has failed to reach a consensus on the size of a bailout fund, with Europe’s major economic power, Germany, showing some reluctance in committing further funds to its struggling partners. These political divisions within the Single currency partner nations should come to a head at next month’s EFSF meeting at the EU summit.

Elsewhere, ECB Board Member Christian Noyer has publicly declared that the new ECB Bank Stress Tests will not repeat the mistakes of last year’s tests. He commented that the 2010 tests were not stringent enough and so failed in shoring-up investor confidence. If the ECB manages to strike a balance between providing investors with a realistic assessment of the state of Eurozone commercial banks whilst not causing undue alarm, then this is likely to prove beneficial to the Euro in the medium term.

Considering the fundamentals, data releases were thin on the ground in the Eurozone today. This morning’s German Trade Figures came in broadly in line with expectations, providing some relief following the negative German Industrial Production and Factory Order numbers released earlier this week.

Looking ahead to the remainder of the week, the German inflation figure on Friday morning is the most significant release. Given the lack of tier one data, the Euro will be susceptible to short-term moves driven by market sentiment regarding sovereign debt. Readers needing to move money back from the Eurozone should consider taking care of at least some of their requirement in the near term, as the Euro’s recovery of the last two sessions could prove short-live.

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