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Euro drops on scepticism about Greece bailout

Euro drops on scepticism about Greece bailout
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First Published: Mon, May 03 2010. 09 34 AM IST
Updated: Mon, May 03 2010. 09 34 AM IST
Hong Kong: The euro dropped on Monday, after a €110 billion bailout of Greece made sceptical investors wonder which country might be next, while a third increase in China’s bank reserves this year added to uncertainty about the near term outlook.
The emergency aid, the most ever for a country, alleviated some fears of a Greek debt default, but still had to obtain parliamentary approvals.
Market reaction reflected the view that promised spending cuts and tax increases by Athens worth €30 billion over three years on top of belt-tightening measures already taken were hardly reasons to cheer.
“The longer-term sustainability of this level of austerity has got to be open to question,” said Tony Morriss, senior currency strategist with ANZ Bank in Sydney.
“The other issue is would this mean that the market will focus on the longer-term sustainability of countries like Portugal and Spain?” Morriss said.
In addition, investors were uneasy about how government policies would affect the outlook for growth, particularly in Asia. Australia said it planned to slap a 40% tax on mining profits, sending shares Rio Tinto and BHP Billiton down 4.4% and 3.1%, respectively.
• Markets in Japan, China and Thailand were closed on Monday for public olidays.
• Euro down 0.8% on the day to $1.3235 after initially climbing as high as $1.3359 after the Greece bailout news.
• Euro still locked in a steep downtrend that began in December. Since then, the euro has lost 18 cents in value.
• Cutting risk exposure is the order of the day, with South Korea’s benchmark KOSPI equity index down 0.8%.
• China lifted the portion of deposits that banks need in reserve to keep inflation at bay for a third time this year, increasing expectations that interest rate rises and perhaps even a shift in yuan policy may not be far away.
• US stock futures were up 0.2%, trimming earlier gains, after Wall Street fell sharply on Friday after sources said US investigators had launched a criminal probe into Goldman Sachs.
• US crude prices were up 0.2% to $86.35 a barrel on relief about Greece financial aid, though gains were rapidly being cut as the euro slid.
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First Published: Mon, May 03 2010. 09 34 AM IST
More Topics: Euro | Europe Markets | Dollar | Greece | Bail Out |