Euro Gets a Breather after European Deal Rally

After more than eight months of bear run, the euro seemed to find feet as it gained a little value after the recent European summit. However, it was not to be, as it lost a little ground again on Monday, July 2. Investors of the Eurozone were scouting for reasons to prolong the rally which was triggered by the small sign of recovery shown by the euro. The summit was held in a bid to find a solution for the ongoing European crisis, where many economies are on the verge of a collapse.

What Caused the Hike?

The reason behind euro’s increase, after nearly a year of bear run, is because of the fact that the leaders of the euro zone made a decision about the rescue strategy for struggling European countries. They agreed to use the rescue fund and provide aid to the banks which are currently struggling and also get involved in the bond market to help the stricken members.

This news gave the people of Spain and Italy something good to rejoice about and also caused an increase of 1.7% in the euro, which was the highest single day increase since October 2011.

Will the Trend Continue?

Some market regulars and experts however did not seem too happy about this increase and questioned whether this trend will be sustained or not. One among this group of doubters was UBS, Singapore’s G10 FX Strategy Associate Director, Gareth Berry. He stated that he would not be surprised even if the gains fell back in the near future. He also affirmed that UBS feels the euro will remain bearish and expects that it would be $1.15 by the end of this year.

Berry also had something to say about the reaction of the bond markets of the euro zone and said that they are just rejoicing about a temporary situation. He pointed out that even though the yield gap between the two countries (Spain and Germany) came down to a very narrow margin, the flow of aid was very low, which depicts a lack of conviction on the part of the leaders. He pointed that most of these low volume aids will only provide temporary respite and is not substantial enough to make any drastic changes.