Euro Plunges On Fears Of Senior Bondholder Impairments At WestLB
Earlier today the Euro dropped to a three week low in the mid 1.34s, following a Reuters report that troubled German lender WestLB may have hit a snag in its restructuring plan. Per Reuters: "Aid for WestLB hangs in the balance, a source told Reuters
on Monday, as the bank struggles to come up with a rescue deal
as it enters the final stretch to present a restructuring plan
to the European Commission. "The WestLB news doesn't provide a great deal of optimism to
the euro at the start of the week."." Not at all, although the 100 pip move lower is par for the course for the one currency that has now absorbed all the vol of the Fed-manipulated and irrelevant stock market. The only question on most investors' minds is whether WestLB will follow Danish bank Amagerbanken A/S as the second one to follow with a senior bondholder restructuring per the new European guidelines. While Amagerbanken was small and isolated, it is time to see just how willing Europe truly is to put its insolvency where its mouth is.
EURUSD this morning:
More from Reuters:
Asian sovereign names were seen pushing the single European currency lower in early European trade, after demand from the region had boosted the euro earlier in the day.
Selling in the euro helped to boost the dollar broadly, pushing it up around 0.4 percent on the day against a currency basket to 78.765, its highest in three weeks.
It was flat versus the yen JPY= around 83.40 yen, recovering earlier losses suffered on earlier selling by Japanese exporters.
The euro's reaction to WestLB's latest woes underline the single currency's vulnerability to any signs of weakness in the euro zone banking sector as some countries struggle to deal with staggering debts.
Debt issues will remain in focus as Spain and Italy hold debt auctions this week, while investors await details of a European debt rescue fund next month. "Concerns about a European debt rescue plan will remain in place until March, and that is definitely a risk for the euro, particularly when you consider the peak redemption for Portuguese and Spanish bond redemptions in Q1," said Sven Schubert, currency strategist at Credit Suisse in Zurich.
Benchmark government debt yields in Portugal PT10YT=TWEB have climbed around all-time highs above 7 percent, which market participants consider to be dangerously high in a country many believe may be forced to appeal for a bailout.
As the euro struggles, upbeat U.S. data has helped shore up the dollar in past weeks, and some analysts said more signs of an improving U.S. economy may boost the dollar even as the Federal Reserve is determined to keep rates chained near zero.
Well of course, in the great seesaw theater in which Europe and America take a leadership role for 2-3 months to keep everyone off edge, and confused, about just how bad everything is, the only thing the powers that be can do, is at least indicate relative outperformance, even as everyone careens off the cliff on an absolute basis. We give the "Great American Golden Age" meme another 3 months max before QE3 talk is fully employed by Jon Hilsenrath.
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