Spanish Election Victory Props up Euro

By: Barbara Zigah

Following news of a victory for Spain’s center-right opposition party, cautious optimism helped to buoy the Euro in Asian trading. The People’s Party is expected to bring in more austerity measures, necessary for the country to restore market confidence. Also helping to prop up the single currency is continued divisiveness among the so-called “Super Committee” members established by the U.S. Congress to tackle the huge deficit.

As reported at 12:30 p.m. (JST) in Tokyo, the Euro was trading against the greenback at $1.3531, a gain of 0.5% from late New York trading on Friday, but well off Friday’s $1.3614 peak. For the most part, analysts don’t expect too much positive momentum from the Euro, given that many of the Eurozone’s governments are still seeing elevated levels of their sovereign debt, and expect that if the $1.3600 level is breached, traders would use it as a selling opportunity.

Analysts are putting the blame for the deterioration in the Eurozone economy squarely on the European Central Bank which has been unwilling to provide the necessary commitment to large scale sovereign debt purchases. While they have ventured into to the market to buy sovereign debt as and when needed, they continue to proclaim that their role is not the lender of last resort. Many analysts believe that that is exactly what their role should be until the crisis is past.