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Euro Falls Broadly on Dollar Funding Comments

Euro Falls Broadly on Dollar Funding Comments

Wednesday on the London session and the euro has fallen broadly against a basket of currencies, after US Federal Reserve Chairman Ben Bernanke commented that dollar funding would not be a permanent fixture.

Dollar swap lines were introduced as the Greek debt crisis deepened, and were seen to be a vital factor in keeping markets stabilised.  Mr Bernanke made clear that this ‘cushion’ will not be around forever.

Investors, while for the large part already aware that this was the case, nevertheless were driven to further risk aversion.

By just before 8AM GMT, the euro had sunk 0.6 per cent to $1.2290.  Last week, the euro had fallen to $1.2143 – if it declines below this level then it would be at its lowest in four years.

The cost of borrowing dollars within the interbank market has risen which is another factor to lead investors to the safe haven of the US dollar and other strong assets such as spot gold.

The main cause for the market’s risk aversion continues to be the cloud of uncertainty that covers the euro zone.  There is also increasing concern that what began as Greece’s economic problems are now threatening the broader global economy.

However there is still widespread acknowledgement that the current credit problems are far less extreme than they were after the Lehman collapse at the end of 2008.  This fact is serving to avert more serious panic among investors.