German ban on Naked Short Selling drives Euro to 4-month trough

By: Barbara Zigah

Yesterday, German officials announced a plan to prohibit naked short selling of shares in Euro-denominated government bonds and swaps, and some 10 German financial institutions, considered by many to be high-risk transactions. Subsequently, the common currency Euro slipped versus the safe-haven greenback to its lowest price in 4 years. As reported at 2:29 p.m. (JST) in Tokyo, the Euro was trading against the U.S. Dollar at $1.2193, a loss of .1%; earlier, on the EBS trading platform, it had traded at $1.2143, the lowest level in more than 4 years. This year alone, the Euro has lost nearly 15% of its value versus the U.S. Dollar.

Market players worry that more European central banks will follow suit and implement their own ban. A report in the Financial Times today suggested that Austria may push for a similar ban that would encompass all of the Euro-zone nations. Market players believe that a wider ban would prompt investors to look outside of the Euro-zone for investment opportunities, and even more downward pressure would be put on the common currency.

Safe haven currencies, such as the U.S. Dollar and Japanese Yen, benefited from investor jitteriness on the German news. The U.S. Dollar Index, a measure of the greenback’s value versus a weighted basket of currencies, traded at 87.458 .DXY, a 14-month peak.