{"id":727053,"date":"2010-04-30T11:05:00","date_gmt":"2010-04-30T15:05:00","guid":{"rendered":""},"modified":"2026-10-04T12:33:54","modified_gmt":"2026-10-04T16:33:54","slug":"euro-safe-from-freefall-unless-crisis-turns-systemic","status":"publish","type":"post","link":"https:\/\/mereja.com\/index\/727053","title":{"rendered":"Euro safe from freefall unless crisis turns systemic"},"content":{"rendered":"

The euro may be weaker due to the Greek crisis, but it has held up relatively well considering the beating Greece's bond markets have taken over the past couple of weeks, Adam Cole, global head of FX strategy at RBC Capital Markets says.  <\/p>\n

Unless the risk of default in Greece expands throughout the eurozone, chances are the European currency will continue to weather the storm.<\/p>\n

"The euro is not pricing in the worst outcome as there is an underlying expectation that Greece will not trigger a systemic crisis far beyond its
borders." Mr. Cole said. "We will not see the euro in free fall unless the periphery risk turns systemic." <\/p>\n

Since April 12, Greek 10-year bond spreads over German bunds have risen from 350 basis points to a peak of 826 basis points after Standard & Poors downgraded the country's debt to junk status earlier this week.   <\/p>\n

Portuguese spreads have also almost doubled over the same period and Spain's yield spreads hit post European Union highs to reflect growing concerns in each of those two countries that has resulted in lesser downgrades to their credit ratings.  <\/p>\n

The euro, however, only lost 1.8% against the U.S. dollar since mid-month, dropping to US$1.31 on Tuesday from US$1.36.<\/p>\n

With bond spreads narrowing again and the euro rallying over the past two days, Mr. Cole offered two explanations for the relatively small drop in the currency.<\/p>\n

The first is that the euro has been quicker to price in disaster scenarios, having dropped significantly in late December, only to recover modestly and drop again from mid-January to late February.  <\/p>\n

"With EUR positioning already at record shorts, the sell-off over the past few weeks has been small in comparison," he wrote.  "This explanation would suggest that downside for EUR would be more limited going forward."<\/p>\n

The second explanation reflects the fact the eurozone is made up of 16 sovereign nations, each with its own bond markets, but just one common currency.  <\/p>\n

"Greece and Portugal combined are approximately 4.5% of eurozone GDP. Greece, Portugal and Spain are 16%," Mr. Cole noted.  <\/p>\n

"As long as Greece remains the only country with a serious risk of restructuring, Greek bonds sell off, but EUR reflects just a fraction of that. As long as the risk of default in Spain is remote, the Eurozone may cope with one errant state." <\/p>\n

David Pett<\/a> <\/p>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

The euro may be weaker due to the Greek crisis, but it has held up relatively well considering the beating Greece's bond markets have taken over the past couple of weeks, Adam Cole, global head of FX strategy at RBC Capital Markets says.  Unless the risk of default in Greece expands throughout the eurozone, chances […]<\/p>\n","protected":false},"author":2571,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"advanced_seo_description":"","jetpack_seo_html_title":"","jetpack_seo_noindex":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[4821],"tags":[],"class_list":["post-727053","post","type-post","status-publish","format-standard","hentry","category-news"],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p9NivD-338F","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/mereja.com\/index\/wp-json\/wp\/v2\/posts\/727053","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.com\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.com\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.com\/index\/wp-json\/wp\/v2\/users\/2571"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.com\/index\/wp-json\/wp\/v2\/comments?post=727053"}],"version-history":[{"count":1,"href":"https:\/\/mereja.com\/index\/wp-json\/wp\/v2\/posts\/727053\/revisions"}],"predecessor-version":[{"id":828539,"href":"https:\/\/mereja.com\/index\/wp-json\/wp\/v2\/posts\/727053\/revisions\/828539"}],"wp:attachment":[{"href":"https:\/\/mereja.com\/index\/wp-json\/wp\/v2\/media?parent=727053"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.com\/index\/wp-json\/wp\/v2\/categories?post=727053"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.com\/index\/wp-json\/wp\/v2\/tags?post=727053"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}