Traders and hedge fund managers have bet US$8B against the Euro, putting on the biggest ever short position in the single currency on fears of a EuroSone debt crisis.
Figures from the Chicago Mercantile Exchange, which are often used as a proxy of hedge fund activity, showed investors had increased their positions against the Euro to record levels in the week to February 2.

The short positions represents more than 40,000 contracts traded against the Euro, equivalent to US$7.6B suggesting that investors are losing confidence in the single currency’s ability to withstand any contagion from Greece’s budget problems to other European countries.

Amid growing nervousness in financial markets over whether countries including Spain and Portugal can repair their public finances, Madrid on Monday launched a PR offensive to try to assuage investors’ fears.

Elena Salgado, Spanish finance minister, and José Manuel Campa, her deputy, flew to London to meet bondholders, where they sought to sooth doubts about Spain’s creditworthiness by repeating promises to cut its budget deficit to 3% of gross domestic product by Y 2013 from 11.4% last year.

The news sent yields on Spanish government bonds, which have an inverse relationship with prices, sharply higher. The premium demanded by investors to hold the country’s debt over German Bunds rose to 1 full point.

The Spanish government is convinced it is being unfairly treated by foreign investors and the media. José Blanco, Spain’s public works minister, hit out at “financial speculators” for attacking the Curo and criticized “apocalyptic commentaries” about Spain’s finance

Appealing for patriotism, Mr Blanco said in a radio interview: “Nothing that is happening in the world, including the editorials of foreign newspapers, is casual or innocent.”

The single currency fell to an eight-month low of US$1.3583 last Friday but recovered a little on Monday to US$1.3683.

Analysts said sentiment towards the Euro had soured because of the increasing concern over Greece’s fiscal problems.

Thomas Stolper, economist at Goldman Sachs, said: “ Behind this intense focus on Greece obviously is the long-standing unresolved issue of how to enforce fiscal discipline in a currency union of sovereign states.”—Paul A. Ebeling, Jnr. www.livetradingnews.com

Posted by Shayne Heffernan on Feb 9th, 2010and filed underEurope, Latest News.You can follow any responses to this entry through theRSS 2.0You can leave a response by filling following comment form or trackback to this entry from your site