The euro traded at $1.27 on Monday morning as the eurozone began the week sure to be plagued with political and financial turmoil. The common currency treaded on thin ice ahead of the European Central Bank meeting, set for Thursday.
The ECB meeting comes at the heels of a controversial agreement on Cyprus' bailout terms, in which account holders in the tiny island nation will shoulder some of the region's massive debt. Although the nation's banks reopened without any major problems, news that account holders with more than 100,000 euros in the Bank of Cyprus will lose nearly 60 percent of their savings has hit the markets hard.
Outside of Cyprus, investors are also nervous about the current political situation in Italy, where February's inconclusive elections left the nation without a government.
Now, over a month later, the three popular parties; Silvio Berlusconi's center-right alliance, Beppe Grillo's anti-estabilishment 5-Star Movement and Pier Luigi Bersani's center- left party have come no closer to establishing a coalition. Although Bersani won control of the lower house, he did not win a Senate majority and has been unsuccessful in establishing a coalition with his rival candidates.
Grillo has outright refused to compromise with both Bersani and Berlusconi, claiming that their parties are responsible for Italy's economic crisis.
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News that Central Banks in developing countries were selling off euros and looking elsewhere for safe, stable and liquid assets also weighed on the common currency. Financial Times reported that developing countries depleted their euro holdings by 8 percent in 2012 by getting rid of 45 billion euros. Now, the euro accounts for just 24 percent of developing countries' reserves, its lowest since 2002.
Looking forward to Thursday's meeting, investors are expecting the ECB to keep interest rates unchanged despite the current political and financial landscape. Many will be analyzing the press conference following the meeting in hopes the region's finance ministers will give insight to their future plans to stimulate the eurozone's economy.
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