Forex: Euro plummets on rumors Greece leaving euro zone

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Fri, 06 May 2011 20:08:00 +0200

Forex: Euro plummets on rumors Greece leaving euro zone

FXstreet.com (Córdoba) – The hegemonic currency is losing near 1% on Friday, as headlines across the wires reported Greece will be considering leaving the euro zone and reintroducing its own currency. Having lost over 500 pips from yesterday’s high just shy of 1.4900, and quoting around 1.4380, rumors extended the selloff that started past Thursday with ECB President Trichet´s lack of commitment on further rate hikes

The Spiegel Online reported that sources with information about the government's actions have informed the paper that Athens is considering withdrawing from the euro zone while the finance ministers of the largest euro zone countries and representatives of the European Commission are holding a secret crisis meeting in Luxembourg on Friday night.

While Greece denies the Der Spiegel report, the WSJ says the meeting is being held but it's not to discuss the return of the Drachma but to discuss aid programs for Greece and Portugal, as well as the succession to Jean-Claude Trichet at the European Central Bank

Amid rumors going back and forward, EUR/USD has fallen as low as 1.4349, price not seen since Apr 20th. The shared currency is also facing strong losses against the yen, the franc, the pound and the Aussie among majors.

"In addition, the withdrawal of a country from the common currency union would seriously damage faith in the functioning of the euro zone. International investors would be forced to consider the possibility that further euro-zone members could withdraw in the future. That would lead to contagion in the euro zone," the paper reads.

Regarding the effects of such move, the paper continues "it would have serious implications for the already wobbly banking sector, particularly in Greece itself. The change in currency would consume the entire capital base of the banking system and the country's banks would be abruptly insolvent. Banks outside of Greece would suffer as well. Credit institutions in Germany and elsewhere would be confronted with considerable losses on their outstanding debts," the paper continues.