Euro, global markets hit as investors digest austerity measures
After rising to around $1.31 following last weekend’s agreement of an emergency $1 trillion anti-crisis package, the euro has been under pressure for most of this week as investor focus has shifted to the impact on growth from tightening fiscal policy.
Portuguese leaders agreed tough austerity measures on Thursday, a day after neighbouring Spain announced similar measures involving reductions in civil service pay and job cuts.
They follow crisis-hit Greece where stringent austerity measures risk aggravating recession, leading investors to believe the eurozone’s fragile economies will encourage the European Central Bank – which started buying the region’s government bonds in sterilised operations this week – to keep interest rates low.
“Fundamental worries are that interest rates will remain low for longer because more fiscal austerity measures will mean lower growth going forward,” said Marcus Hettinger, global FX strategist at Credit Suisse in Zurich.
“Interest rate differentials moved against the euro as the ECB started buying bonds and markets have priced out interest rate hikes. That’s driving the euro lower.”
On Friday morning, the euro erased early gains and fell as low as $1.2433, its weakest since November 2008, led by aggressive selling from macro hedge funds.
The euro has fallen more than 13 percent against the dollar and yen this year, making it the biggest loser among major currencies.
Global markets also tumbled with the Nikkei down 1.49pc to 10462.51 points overnight. In morning trading, France’s CAC 40 index lost 2.7pc to 3633.83, Germany’s DAX fell 1.3pc to 6169.11 and the FTSE dropped more than 1.7pc to 5341.40 by midday.
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Tags: Austerity Measures, Global Markets Hit, Investors Digest, Measures