By: Barbara Zigah
Yesterday, as many analysts had expected, the Portuguese Parliament declined to endorse legislation which would have called for austerity measures aimed at reducing the country’s massive budget deficit. In the wake of the vote came the resignation of Jose Socrates, the Prime Minister, and the call by the Portuguese president for new general elections. The common currency Euro slipped in Asian trading against the U.S. Dollar, with the realization that Portugal will have no other option but to seek the offered bail-out package from the joint E.U./IMF special purpose mission.
As reported at 1:17 p.m. (JST) in Tokyo, the Euro slipped against the greenback to $1.4075, a session low. Earlier in the week, the Euro had risen as high as $1.4249, a level not seen in more than four months. One trader in Europe suggested that the Euro will likely resettle to around $1.3850, once optimistic sentiment erodes. Also keeping the Euro suppressed was a media report that Moody’s, the credit ratings agency, is likely to downgrade Spanish bank debt during the day.
Still, traders expect to see some support for the Euro as April approaches, when the interest rate hike that the European Central Bank president has been foretelling could finally occur. Some analysts continue to criticize the ECB stance that a rate hike will be the answer to the Eurozone’s ills, believing that any tightening of monetary policy at this time will worsen the fiscal problems encountered by several Eurozone nations.