The euro fell to a nine-year low against the dollar earlier today as the prospect of Greece leaving the eurozone weighed on markets.
Speculation about such a prospect intensified at the weekend when a German newspaper report suggested politicians in Berlin were ready for a Greek exit should should the anti-European Union party Syriza win in the January 25 polls.
Greece’s prime minister Antonis Samaras called a snap-election last month which has pushed the country’s 10-year bond yields up to more than 9.2 per cent - more than 8.7 per cent above the equivalent German bund.
Kathleen Brooks, research director UK EMEA at Forex.com, said the euro had dropped to a 2006 low overnight even though it had stabilised today.
“While we still think there could be further weakeness, the fact that most of the market are looking for further losses makes me pause,” Ms Brooks said.
“In the next few days it could be a case of sell rallies back to 1.20 rather than initiate new shorts on any losses, which would indicate that we could be in for a period of consolidation until we hear something else from the European Central Bank.
“However, in the longer-term we could see [the euro/dollar rate] back to 1.15 by the time the year is out.”
But Ms Brooks said while the prospect of Greece leaving the euro had hit the currency, the impact had not been as drastic as it might have been in previous years.
“The euro may have fallen 3 per cent since before Christmas, however, only a couple of years ago the prospect of Greek exit could have triggered a 10 per cent decline,” she said.
“Has the market got used to the idea of Greece being out of the currency bloc? Maybe, the German press reported at the weekend that German chancellor Angela Merkel is ready to accept a Greek exit and sees it as both manageable and inevitable if Syriza wins the election later this month.”
The research director added, though, that the problems could start for Europe if Greece does leave and then thrives outside the bloc as this could lead to “more members queuing up to leave sending the euro into free-fall”.