Euro Slips Further on Bleak Future

By Roger Baettig | January 04 2013 8:59 AM

The euro slid on Friday morning as investors worried about the U.S. upcoming budget battle and approaching debt-ceiling. The common currency traded at 1.3013 on Friday.

Reuters

A bigger-than-expected GDP contraction in Q4 brought a dismal end to a very difficult year for the euro zone.

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After a huge jump following the U.S. fiscal cliff deal, the markets calmed and the euro began to sink. It's no secret that the region is in for a difficult year, and although recent progress gave the currency a lift, the bloc still has quite a bit of work to do.

The euro has been weakened by the prospect that The European Central Bank, whose monthly meeting is coming up, will cut interest rates. The current interest rate is 0.75; already a record low level.

In addition, social unrest throughout the struggling countries in Europe is creating a worry about instability. Spending cuts have not been well received in countries like Spain, Greece and Italy, whose citizens took to the streets in protests and riots. The Wall Street Journal reported that European Commission President Jose Manuel Barroso gave a speech in Lisbon on Thursday where he reassured the region that bailout programs would be flexible.

He remarked in that the commission would do what it could to minimize social costs by evaluating the impact the programs had on the people and make changes as necessary.

The euro is also being dragged down by uncertainty over the U.S. upcoming debt ceiling, and the potential for another showdown between President Obama and Congressional Republicans in Washington. As the two sides prepare to negotiate a new budget, Republicans are expected to fight hard for spending cuts after conceding to tax increases during the fiscal cliff negotiations.