Market Overview

Eurozone's Economy Puts an End to Euro Rally

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The euro's momentum continued to falter on Tuesday morning amid speculation that the eurozone isn't as strong as the currency's recent rally would suggest.

The common currency traded at 1.3386 at 7:40 GMT on Tuesday as fundamental problems within the region rose to the surface and shook investor confidence.

Following last week's European Central Bank meeting, bank President Mario Draghi's comments caused many to speculate that the bank would cut rates in the future, making the euro less desirable.

After Draghi's pledge to keep the eurozone together back in 2011, the region slowly made progress toward recovery and the currency rocketed in the beginning of 2013.

The currency's rally seems to be driven by sentiment, and recent political and financial trouble in the region underscores the eurozone's continuing economic difficulties.

Eurozone leaders are under pressure to come to an agreement about Cyprus' bailout package before the nation defaults and is forced to exit the currency bloc. The island nation's finances are under scrutiny as rumors of tax evasion scandals keep eurozone finance ministers from reaching an agreement.

Investors are also worried ahead of Italian elections set for the end of February. Silvio Berlusconi, whose stint as Prime Minister ended with his resignation and soaring bond yields, has moved forward in the polls recently and caused many to fear that the fragile nation will backtrack under his leadership.

With record high unemployment and social unrest throughout most of the southern countries, most investors remain cautious about investing just yet. Financial Times reported that some analysts expect that the eurozone's broken economy will leave the currency as low as $1.23 at the end of the year.

However in the near term, some expect to see the euro's rally continue. With eurozone banks due to pay back another instalment of their ECB loans at the end of the month, the currency could rise near $1.40.

Posted-In: Mario DraghiNews Commodities Forex Global Markets Best of Benzinga

 

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