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The euro has hit 14-month lows against the US dollar over fears that austerity measures will dampen growth in the region.
It seems likely that higher taxes and cuts in public spending will slow growth prospects in Spain and Portugal, and doubts are rising over whether Greece will be able to repay its debt even if it can implement its austerity plans. ‘Love for the euro is almost non-existent at the moment, I don’t know if there is a near-term catalyst to change the euro’s fortunes.’ said Adam Carr from ICAP. Inflation expectations are also on the agenda, as investors are sceptical about the EU’s ability to purchase public and private sector bonds in the region without increasing the aggregate money supply. In order words, the market is speculating that the EU will have no other choice but to implement quantitative easing, which will in turn add pressure on the euro.
