Upward Momentum of the Euro Wanes While Sterling Rises

06/06/2011 by neilwilliams2009.

Recent reports show that the euro is losing grounds to sterling. From March, it was seen that while sterling is gaining in momentum, the euro has started to stagnate. The euro slipped by 0.2% to around 85.88 pence. The euro has been rising steadily in value and in the month of January of 2011 it was seen to be around 86.72 pence. The rise in Euro till now has been mainly because Europe’s requirements of debt help has been much lower in comparison to that of U.S.

Status of the Euro

A few years back, the euro was seen to be rising constantly in importance so much so that the market watchers were of the opinion that euro might supplant the dollar as the world’s most important and dominant reserve currency in about twenty years.

At the same time the value of dollar has been sliding down from the time of the recession in 2007. The U.S. deficit ballooned to around 5-6 per cent of the GDP in the recent years and in addition the US debt to the rest of the countries rose to around 20 per cent of the GDP. The importance of euro increased because of the economic policies of the U.S. and because of the scope of expansion of the euro zone. According to the financial experts, if the thirteen members of EU join the European Economic and Monetary Union or EMU by 2020, including UK or United Kingdom, euro may gain importance as the reserve currency.

During 2010 the euro was in much better position than dollar. This rise continued untill February of this year. But the continuous rise halted in March as the sovereign debt worries returned. Experts are of the opinion that the high oil price and the expectation that the euro zone will have higher interest rates may go in the favor of euro. On the 7th of March (2011), the euro rose against the dollar above $1.40 but it faded as the liquidity in London began to dry up during the day. As reports by Reuters, the euro was last seen at $1.3971, which is down by 0.1 per cent. So, euro remains at about 4.3 per cent. In comparison to euro, sterling has been rising steadily. It gained points over the euro in March itself.

The President of the European Central Bank said that the euro zone interest rates may rise by next month and this may also help the euro in maintaining its rise. However, the economic experts are of the view that if no one is able to find a resolution for the euro debt problem, then the euro could fall. The sovereign debt concerns have been dominating the economic and the political scene for the last few months. Most of the economies in the euro zone are still struggling with stagnating growth and comparatively high debt burden. These countries are in need of urgent debt help.

As a result of this debt problem, the countries may incorporate tighter monetary policies. This in turn may put a stop to the rise of the euro and limit its gains.

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