Euro Bears See Euro Dropping to $1.20 This Year

 
on March 27 2013 9:05 AM

The euro traded steadily above $1.28 as investors continued to fret about Cyprus' bailout plan and its impact on the rest of the currency bloc.

Dutch Finance Minister and President of the Eurogroup' comments that the plan to use individual deposits to raise bailout funds could become a template for future bank rescues shook financial markets and stirred up fresh tension between struggling southern European countries and their northern counterparts.

Though Dijsselbloem's statements weren't well received, he stood by them by saying that risks should fall to shareholders, bond holders and in extreme cases, uninsured depositors. In this situation, taxpayers who have no stake at all in the bank are unaffected.

With this new bailout procedure on the table many are worried about capital flight in nations like Spain and Italy, where rescue funds could be needed in the future. According to the Wall Street Journal, bearish investors are expecting the euro to fall below $1.20 in the months to come if the problems in Cyprus spread to other nations.

On the other hand, some claim that the situation in Cyprus is just a drop in the bucket, and that the country's problems will not spread to other parts of Europe. These investors say that the euro could rise to $1.36 this year despite the recent problems because the common currency is backed by countries like Germany and France, two of the most stable economies in the world.

However, German bond yields have been sliding recently as the financial crisis in Cyprus develops. Currently at 0.005, analysts say there will be cause for concern if the bonds become negative.

(c) 2013 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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