Should You Short the Euro?
The Eurozone crisis has started to reach epic proportions. A number of experts around the world are concerned that at least one nation will leave the single currency union within the next year. As concerns continue to mount, many investors are wondering if they should short the euro. Some prominent investors such as Lord Rothschild and George Soros have already shorted the currency.
Here are some factors you may want to take into consideration before you commit to shorting the currency.
Borrowing Costs Continue to Rise
One of the biggest concerns many investors have is that borrowing costs for many of the PIIGS countries continue to rise. Rising interest rates could make it more difficult for these countries to make future payments. Global investors are paying particularly close attention to the borrowing costs of some of the more distressed countries. The euro has fallen as interest rates for many of these banks continue to rise.
The European debt crisis is only one factor that is causing concern for investors. The Eurozone region is already in the midst of a new recession. New data was released in September which showed that the Eurozone was going deeper into a recession. This caused the euro to drop more against the United States dollar. Economists expect the Eurozone to remain in a recession for the foreseeable future.
Problems are getting particularly bad for Greece. Greek leaders have recently announced that they are selling everything and anything they possibly can to generate revenue.
Efforts from the European Central Bank
The European Central Bank has been trying to resolve the region’s financial crisis. However, many of its efforts have not worked as well as it has hoped. The ECB is still opposed to implementing a new round of quantitative easing. However, it is trying to keep rates as low as possible. They have been debasing the euro hoping that they can help the Eurozone increase exports.
Global Economic Slowdown
The Eurozone economy isn’t the only one that is struggling to grow. The United States has recently been forced to implement a new round of quantitative easing to stimulate the economy. China has reported that the economy has slowed down considerably in recent months as well. This reduces the market for Eurozone exports, which makes it increasingly difficult for the economy to recover.
Failed Austerity Measures
Germany has required Greece and Spain to agree to a series of austerity measures. These nations have been dependent on Germany to provide a series of bailout funds to help them make payments on outstanding debt obligations. These austerity measures are deemed necessary by many economists, but they seem to also be dampening the outlook for the struggling Eurozone countries.
A number of factors indicate that the economic crisis in the Eurozone continues to worsen. This may present a great opportunity for many investors who are brave enough to short the single currency. Shouldn’t something good come out of a collapsing currency?