The euro is doomed!

May 17, 2010 05:15

“The euro is doomed,” said Andrew Wilkinson, senior market analyst at Interactive Brokers Group LLC in Greenwich, Connecticut. “It’s like a clown without its makeup. The strains among the partners are becoming clear and it’s becoming harder to see global growth not being threatened by this.”

By Ben Levisohn at

The euro fell to its lowest level since the collapse of Lehman Brothers Holdings Inc. on concern that the 16-nation currency may be headed for disintegration.

The shared currency fell for a fourth week versus the dollar and a third week versus the yen, the longest losing streaks since February, as German Chancellor Angela Merkel said that Europe is in a “very, very serious situation” despite a rescue package for the region’s most indebted nations. European Central Bank Governing Council member Axel Weber speaks on financial-market regulation next week in Berlin.

“We went through a massive liquidation trade in Europe and risk-taking positions were wiped out across the board,” said Sebastien Galy, a currency strategist at BN Paribas SA in New York. “The markets are trying to figure out what the consequences are for growth. There are massive uncertainties and that will keep the downward pressure on the euro.”

The euro fell 3.1 percent to $1.2358 this week, from $1.2755 on May 7. It traded as low as $1.2354 yesterday, the weakest since October 2008. The common currency dropped 2.1 percent to 114.38 yen, from 116.81 last week. The dollar traded at 92.47 yen after gaining 1 percent last week, the first weekly gain since the five days ended April 23.

‘A Sham, A Chimera’

European policy makers last week unveiled a loan package worth almost $1 trillion and a program of bond purchases in an effort to contain a sovereign-debt crisis that has threatened to shatter confidence in the euro. ECB President Jean-Claude Trichet said the move wasn’t supported by all 22 of the bank’s Governing Council members.

The ECB said it will intervene in government and private bond markets “to ensure depth and liquidity in those market segments which are dysfunctional,” and central banks in Germany, Italy and France began buying government bonds yesterday. The ECB restarted a dollar-swap line with the Federal Reserve.

By resorting to what some economists have called the “nuclear option,” the ECB may open itself to the charge it’s undermining its independence by helping governments plug budget holes.

“The ECB’s supposed ‘independence’ has now been shown to be nothing more than a sham, a chimera, a will-o’-the-wisp,” Dennis Gartman, a Suffolk, Virginia-based economist and hedge- fund manager, said in his daily Gartman Letter on May 10. “In the end the ECB and the euro will be punished for this decision to stand down from what had previously been considered sacred.”

Success Not Guaranteed

The greenback rose against Australia’s dollar and Norway’s krone, as oil and commodities retreated, damping demand for currencies linked to growth.


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