By: Barbara Zigah
Market players remain cautiously optimistic that a resolution to the debt crisis will be provided by the Eurozone’s leadership, as they prepare to meet later this week for what is being deemed as a make-or-break E.U. summit. With that sentiment as a backdrop, the Euro was nudged higher in Asian trading rising 0.1% against the U.S. Dollar to trade at $1.3418 and holding off the Tuesday lows of around $1.3334. Most recently, at 2:30 p.m. (JST) in Tokyo, the EUR/USD pair was trading higher at $1.3423, though any rally in the pair is likely limited to around $1.3550 over the short term.
The key worry among investors is whether or not the political will is sufficient to push through a E.U. treaty amendment which would require tighter fiscal monitoring. That appears to be what the ECB needs to see done in order for them to agree to take on a larger role in the crisis. Moreover, the credit ratings agency, Standard & Poor’s, has already stated that they would downgrade the Eurozone member nations if they did not take this critical step.
Tomorrow, the European Central Bank will announce any possible changes to their monetary policy; markets have priced in a decrease in the benchmark rate by 25 basis points but it is also a possibility that the interest rate cut could be even deeper. Analysts also expect that the central bank will announce additional liquidity operations of a longer maturity.