Investors seemed willing on Monday to set aside fears that Europe’s sovereign debt crisis could worsen, bidding the beleaguered currency to US$1.2299 by early afternoon trading in New York. The rally was short-lived however, as more bad news on Greece’s future reversed the trend, sending the euro into a tailspin falling to $1.2212 shortly after Moody’s Investor Service downgraded Greece’s credit rating four levels to “junk’ status.
The volatility in Monday’s trading session, shows that the euro zone countries have yet to convince markets that the euro has stabilized. In a statement released on Monday, Goldman Sachs Group Inc. downgraded its earlier prediction for the euro, now suggesting it could fall to a seven-year low of $1.15 by the end of the year.
Dale Thomas, Head of Currencies at Insight Investment Management Ltd. in London echoed this pessimism suggesting that “the sources of concern won’t go away any time soon”. Indeed, Thomas summed up the mood of many investors when he said “we’re defensive and we still don’t like the euro”.
As investors fled the euro, North American stock markets and oil came out as winners. The DJIA was up 40 points to 10,252 at 3:30 pm in New York, but earlier in the day, broke through 10,300 before retreating on news of the Greek credit rating cut. Crude oil for July delivery, closed the session on the New York Mercantile Exchange with a 1.7 percent increase to $75.03 a barrel.
