Currency

Euro recovers after falling to $1.21

—Frankfurt, 5/19/2010 (EFE)—

The euro recovered from its sudden morning fall and closed at $1.2335, compared with the previous day's $1.2382.

The European Central Bank set the official exchange rate for the euro at $1.2270. According to analysts, the euro's recovery confirms the volatility of the market, which in one session saw the European currency lose two cents on the dollar, to $1.2190, and recovered by the same amount in a matter of hours.

The fall was a reaction to Germany's decision to prohibit naked short-selling and credit default swaps (CDS) on the public debt of countries in the euro zone. The German financial authorities also prohibited naked short-selling of shares in Aareal Bank, Allianz, Commerzbank, Deutsche Bank, Deutsche Börse, Deutsche Postbank, Generali Deutschland Holding, Hannover Rückversicherung, MLP, and Münchener Rückversicherung.

In the opinion of observers, the fact that Germany apparently adopted the measure on its own was interpreted in the markets as another proof of the discord within the European Union and its ability to overcome its crisis in a united way. During the day, however, Berlin's measure received the endorsement of other members, and even of the European Commission, restoring calm and allowing the euro to recover in the market.

One factor contributing to the renewed confidence was the confirmation that Greece has complied with the payment of 8,6 million euros to the holders of ten-year bonds falling due today, after receving yesterday a first round of aid valued at €14.5 million.

Currency traders predict, however, that the crisis in confidence throughout the euro zone will have an effect on the euro, necessitating technical corrections. They guessed that the euro's downward trend will continue, trading at between $1.18 and $1.20 in the coming days.