Ooops – There Goes the Euro!
As markets take stock of the Greek bail out plan and weigh the chance that other European Euro Zone nations such as Portugal and Spain, amongst others, may also require bail outs as their credit ratings plummet, the Euro is taking a battering and has slipped below 1.30USD in New York today. The US Dollar, which hasn’t looked such a good investment either in recent months, is now looking like a better bet than the Euro. In reality, I see both currencies as somewhat weak but with the Euro currently looking extremely vulnerable. As the Euro slides, what might the impact be for commodities?
During much of the last 2-years, European consumers have enjoyed some level of protection against rising commodity prices such as crude oil and gasoline – which are priced in US Dollars – because of the Euro. Now, Europeans can expect to start paying higher fuel and other commodity costs on the back of that weaker Euro. Yes, most commodity prices have also weakened considerably since the highs of 2008 but none the less, European commodity prices will be higher all the same and will add to the economic difficulties Europe is still facing. One might also think that, with both the Euro and in reality the USD being unattractive, many investors will seek some safety in commodities thus perhaps moving prices up. Additionally, there ought to be greater FX market activity as commodity buyers and sellers try to hedge out their Euro exposure. Interestingly enough, today both Crude Oil futures and Gold prices are also in decline and commentators attribute that to asset liquidation by funds and others impacted by the growing Euro Zone debt crisis.
From a personal stand point, I’m quite pleased that the Czech Government has resisted the urge for the Euro and retained the Czech Crown. While the Czech Crown is slipping against the US Dollar, it is doing so more slowly, pulled by the Euro with which it is to some extent linked as an EU country but supported by some depth of resilience in the Czech economy. Being British – and somewhat anti EU as appears to be common for Brits!? – I also think many of my countrymen may also be quite pleased they chose the retain the Queen’s head on British currency too.
