This Telegraph article attributes the bearish outlook for the euro to deteriorating fundamentals and expected rate cuts. As the yen attests, a sharp fall in economic activity and prospects can lead traders to change their views, sometimes abruptly. And the euro has always had a whiff of doubt about it, with less than the full suite of institutional arrangements that other major currencies have.a
The story fails to mention a more immediate cause for concern: the possibility of banking failures in Eastern Europe blowing back to the rest of Europe.
From the Telegraph:
In recent days, futures traders in the US have significantly increased their bets that the euro will fall against the dollar. Data released by the Washington-based Commodity Futures Trading Commission on Friday showed that the “net short position” of trades against the euro by hedge funds and speculators almost doubled in the week to March 3 to 19,431 contracts from 10,081 contracts a week earlier.
“Quite a significant correction in the euro is coming in the next few months. The European Central Bank (ECB) is behind the curve in getting to grips with its economic problems,” said David Buik of BGC Partners. He added that the eurozone entered recession later than other economies, but policy-makers had been too slow to act, putting the currency at risk.
The global recession means that the euro is facing its strongest test since its launch a decade ago as the less productive countries such as Spain, Greece and Italy have failed to match the efficiency of some of Europe’s faster growing economies.
Last week the ECB cut interest rates to a record low of 1.5pc and further rate cuts are expected. The ECB now expects that the eurozone economy will contract between 2.2pc – 3.2pc this year, after previously forecasting a fall of zero – 1pc.