Reuters | Fri May 14, 2010 | 5:17pm IST
The euro hit an 18-month low versus the dollar and European shares fell sharply on Friday on speculation that fiscal austerity in some euro zone countries may stifle economic growth. High-risk assets including stocks took a hit and worries about the euro zone debt crisis prompted demand for safer investments, pushing gold to a record high while the dollar hit its strongest versus a currency basket in a year. European authorities announced a massive debt safety net for Greece, Spain and Portugal this week, but investors remain sceptical whether those countries can take the pain of overhauling their poor public finances. Such uncertainty drove the euro as low as $1.2433 according to Reuters data, its weakest since November 2008, having broken through options barriers at $1.2500 and $1.2450.
Gold prices, which often climb in times of risk aversion, soared to a record high of $1,248.95, while the yellow metal priced in euros, sterling and Swiss francs also hit its strongest ever. "The uncertainty brought about by sovereign risk is pushing markets lower," said Nick Parsons, head of markets strategy at nabCapital. "Until we get clarity about whether austerity measures can be implemented, risk markets will head lower." Such uncertainty pushed the MSCI world equity index down 1 percent, while the FTSEurofirst 300 index fell 2.0 percent. U.S. stock futures pointed to a lower opening on Wall Street.
BBC News | Thursday, 6 May 2010 | 11:04 GMT
Banks in the UK and Europe risk their credit ratings being damaged because of "contagion" from Greece’s debt crisis, a ratings agency has warned. Moody’s said banking systems faced "very real, common threats" if doubts were raised about their governments’ abilities to pay debts. It referred specifically to UK, Irish, Italian, Portuguese and Spanish banking systems. Some banks have revealed their exposure to Greece. These include 5bn euros ($6.4bn; £4.2bn) at BNP Paribas. Shares in Asia and Europe have fallen on worries over the Greek debt crisis and whether problems would spread. Japan’s Nikkei index shed 3.3% after markets reopened following a three-day holiday.
The UK’s public finances are forecast to be in a worse state than any other major European country, including Greece, by the end of this year, the European Commission has said. The report said the UK government was expected to borrow the equivalent of 12% of GDP. However, the UK’s debt levels are considerably lower than those of Greece – and analysts say there is no immediate prospect of the UK’s triple-A credit rating being threatened. The European Central Bank meets later amid growing concerns over the economies of Greece and Portugal. It is under pressure to signal how it plans to shore up the euro, which hit a fresh 13-month low against the dollar in Asian trading.
"The focus stays on the euro as the contagion trade persists," said analysts at JP Morgan. They added that Thursday’s ECB meeting had "grown immensely in importance as the redeployment of some form of credit crisis tools seems increasingly possible". The ECB is expected to keep interest rates on hold at 1%. However,