Your Own Forex Reviews and Market Updates

The Sesterii – a new currency just for Southern Europe?

A cut to Spain’s credit rating yesterday, coming just mere days after a downgrade to that of Portugal and Greece, fueled fears that the Euro Zone’s debt crisis is widening at an alarming pace – sending tremors of volatility across the forex market.

The Euro touched on a new 12-month low, after Standard & Poor downgraded Spain’s credit rating from AA+ to AA and said the outlook on the country’s debt is negative. The single European currency traded at as low as $1.51240, on the forex market, as concern that Europe’s deficit crisis may widen damped the appeal of assets in the 16-nation region. The S&P’s latest stab at the European continent, in addition to early downgrades this week to Portugal and Greece, exasperated fears that the Euro Zones debt crisis is spreading.

Between Germany insisting that Greece agree to “terms” before handing over their share of the bailout fund, and the IMF now reporting that the Greece’s bailout package could total to €120billion ($150 billion) over three years – nearly three times the amount previously pledge- its seems as if Europe has been sucked up in into a black hole of utter disaster.

While the Euro became a rival to the US dollar after the common currency’s inception in 1999, the debt crisis that began in Greece, a country that accounts for less than 3% of the nations GDP, shows just how easy it is to shake the common currency. The euro’s 11% decline in the past six months (on the forex market) made it the worst performer among its 16 most-traded peers.

According to Sudeep Singh, a hedge fund manager who has treaded in emerging markets for 17 years, European nations are constrained by the Euro because they can’t reduce the costs of their goods and services with a cheaper currency. The credit ratings of Spain and Portugal were cut this week amid concern Greece’s difficulty to pay its debt will spill over to Spanish and Portuguese markets.

An alternative is needed to let Greece and other European nations devalue their way to financial health. According to Mr. Singh, Europe needs to split its currency into two classes to provide an alternative for struggling nations such as Greece and Portugal. He proposes calling the new currency the “sestertii” after the Roman Empire coin once used across southern Europe.

“In every other emerging-market crisis there’s been a currency devaluation, a debt restructuring and tighter new fiscal policy. Greece and the others can’t become competitive without a cheaper currency.” Sigh said “There are differences, and screaming differences, that have now been shown between the regions of the euro-zone,” he said.

The European Central bank has already said that expulsion of Greece from the Euro –Zone is legally impossible – replacing the European common currency that’s been in place since 1999 is getting less far-fetched, Singh said.

Tags: EUR/USD, Euro, euro zone, Forex market, Greece and the euro, greek debt crisis, IMF

Is Portugal fated to follow Greece in its tragic footsteps?

Out with the old, and in with the new?

With a higher debt burden and a slower 10-year growth rate than Greece, Western Europe’s poorest country is being punished by investors as the sovereign debt crisis spreads. The risk premium on Portuguese bonds rose to more than double the past year’s average this month alone. With Portugal’s credit default swaps showing investors rank its debt as the world’s eighth-riskiest, worse than for Lebanon and Guatemala, one has to wonder is Portugal about to perform its own version of a Greek tragedy? Is Portugal at risk of becoming the “New” Greece?

Yesterday the Euro slipped against all its major currency counterparts, in the forex market, as uncertainty intensified over how and when Greece would get the financial aid sought last week to avert a potential sovereign debt default. The spread between Greek and German 10-year government bond yields hit a new 12-year high of 679 basis points on Monday, indicating market concern over the implementation of the aid package and the conditions attached to it. Portuguese spreads, the extra yield that investors demand to hold its debt rather than German equivalents, followed in Greece’s footsteps jumping to 218 basis points, the most since at least 1997.

While Portuguese Prime Minister Jose Socrates tried to convince investors that his country will avoid Greece’s tragic fate, his attempts were thwarted by an economy that’s expanded less than an annual average of 1% for a decade and its economy is completely dependent on tourism and industries such as cork and pulp.

According to Kenneth Wattret, chief euro region economist at BNP Paribas SA in London, “The reason we’re concerned about Portugal is not because its public sector debt ratios are excessively high, it’s more that the Portuguese economy doesn’t really grow.” Moreover, the EU’s difficulty in containing the Greek crisis is strengthening the threat of “contagion”, just as the near-collapse of Bear Stearns Cos. in 2008 undermined other U.S. banks, exacerbating the credit crisis.

Despite the fact that Portugal’s public debt of 77% of gross domestic product is on a par with that of France, the burden including corporate and household debt exceeds that of Greece and Italy, at 236% of GDP. Moreover, the savings rate is the fourth-lowest among 27 members of the Organization of Economic Cooperation and Development, according to the Paris-based group’s data.

The real risk for Portugal is that investors who are trying to protect their portfolios from a Greek-like rout will immediately begin dumping holdings of small euro countries, such as Portugal. Once that happens, surging bond yields could drag Portugal into the same downwards spiral that the Greece is so desperately trying to escape.

Tags: currency trading, Euro, euro zone, Forex market, Greece and the euro, greek debt crisis, Portugal

FX Today: Euro Drops as Investors have Crisis of Confidence

Today Greek bonds tumbled, pushing yields above the record highs seen last week as speculation grows that Germany may refuse to guarantee an early release of rescue funds. The 10-year Greek bond yield rose by 91 basis points to 9.71%. The two-year yield climbed 262 basis points to 13.6%.

The interest rate is 6.14 percentage points higher than Germany’s rate – Germany is seen as the safest investment in Europe. It is the largest spread in bond yields for 12 years. The increase indicates that investors are still nervous over plans to rescue the Greek economy in spite of progress on bailout talks over the weekend.

After Friday’s rally on the forex market the euro has fallen during todays trading. Against the US dollar the currency has dropped 0.21% on the day’s opening to EUR 1.33243 and it has fallen 0.76% against sterling to 0.86189 pence to the euro.

Greece’s debt, which totals 115% of GDP as well as a budget deficit of almost 14%, has forced the country to request 40 billion euro’s of aid from the European Union and the International Monetary Fund. Yesterday Greek Finance Minister George Papaconstantinou said talks with the IMF over the weekend went well and the IMF head, Dominique Strauss-Kahn, said a deal would be agreed “in time to meet Greece’s needs”.

Greece has 8.5 billion euro’s worth of bonds maturing on the 19th of May that it must repay. The EU is expected to provide 30 billion euro’s worth of aid this year with a further 10 billion euro’s to come from the IMF. However the scale of the assistance that Greece will require after this year remains unclear.

The backing of Germany, Europe’s biggest economy, is vital for any aid but Berlin faces public opposition to a financial rescue and is taking a tough line over the terms. “The government has not taken a decision (on aid),” German Foreign Minister Guido Westerwelle told reporters at a meeting of EU ministers in Luxembourg. “That means that the decision can fall in either direction. Offering money too soon would get in the way of Greece doing its homework with the requisite diligence and discipline.”

Despite German pressure on Athens, markets have kept pressure on Berlin by pushing up the cost of insuring Portuguese government debt to a record high amid fears that Portugal could be the next EU member state to face a debt crisis.

“The Greek crisis has started to spread to the rest of the periphery and Portugal seems to be next in line. The situation there is less urgent than in Greece, but the medium-term outlook is challenging,” one senior economist said. “Unless Europe’s leaders can draw a line under the situation, Portugal could face an uncomfortable period.”

Tags: currency trading, EUR/GBP, EUR/USD, Euro, euro zone, forex, forex analysis, forex charts, forex daily, Forex market, forex news, forex online, forex qoutes, Forex Trading, Greece and the euro, greek debt crisis, IMF, trade forex