Strong demand is outpacing supply at a faster rate this year than estimated, especially after the UAE’s removal from FATF Grey List
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Stuck around the 1.35-dollar mark, the single currency is a fair amount above its nine-month low of $1.3146 reached in early October, since when the eurozone has been thrown into chaos by political crises in Italy and Greece.
‘In view of the difficulties in the eurozone the euro is firm like a rock,’ said Commerzbank analyst Lutz Karpowitz.
‘A glance at the euro-dollar chart quickly demonstrates that the single currency is hardly trading at crisis levels,’ he added.
Economists are speculating over whether the euro has a future 10 years after its birth, as fears grew over contagion from the deepening eurozone sovereign debt crisis.
European shares have tumbled over the past week as Italy, Spain and France faced a sharp spike in borrowing costs on bond markets.
The yield on Italy’s 10-year government bonds topped the 7.0 percent level considered unsustainable for the government to service its huge debts, while Spanish bond yields have also approached the crucial level.
But the euro held up, with analysts pointing to solid growth in the eurozone’s powerhouse Germany as a key reason.
German official gross domestic product (GDP) expanded by 0.5 percent in the third quarter, fuelled by strong domestic demand and healthy consumer spending.
That marks something of a return to form for Europe’s biggest economy, after growth had slowed unexpectedly to 0.3 percent in the second quarter after a buoyant 1.3-percent expansion in the first three months of the year.
Germany’s strong position should meanwhile help to offset an expected return to recession for France and Italy, the eurozone’s second and third biggest economies respectfully.
The euro could also be winning support from financial institutions repatriating funds invested in Asia to cover their losses in Europe, according to some analysts.
Analysts warn however that the euro may be enjoying only a brief respite.
‘The euro resilience could soon be over,’ said Karpowitz, should Europe’s political elite and the European Central Bank fail to come up with a lasting solution to a debt crisis that risks spiralling out of control.
But the United States’ own deficit and debt problems have provided the euro some support.
A warning by Moody’s about rising borrowing costs putting pressure on France’s top triple-A rating sent the euro below the $1.35 level on Monday, but it rebounded on the expected failure of US lawmakers to reach agreement on deficit cutting measures.
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