The euro fell to $1.2237 in early trade, while one pound was worth $1.1702. It has since recovered ground and was trading at $1.23860 at around lunchtime. The euro’s previous low this year was $1.24520.
Traders and economists are concerned that despite the huge sums of money that has been pumped into eurozone countries, the severe austerity measures required to cut budget deficits will stiflegrowth.
Earlier this month, the European Union and International Monetary Fund agreed a deal worth €750bn to try to prevent the Greek debt crisis from spreading into other weak eurozone economies such as Portugal or Spain.
However, after an initial period of euphoria following the deal, European stock markets have begun to slip back down, with Spain’s IBEX index closing 6.6% down and France’s Cac 40 closing 4.6% down on Friday.
Mark O’Sullivan, director of dealing at currency exchange firm Currencies Direct, believes the euro
could drop even further.
“Last week’s €750bn bailout package for Greece and other eurozone members may have provided a
back stop to the European debt markets, but the lack of confidence in the ability of the southern European states to radically reform their labour markets, increase productivity and adhere to the tough fiscal measures needed, has seen the value of the euro continuing to fall," said O’Sullivan.
“That fall will be welcomed by German exporters as their goods become cheaper to purchase and export led growth may well pick up in the northern member states. But that will make little difference to the currency markets, focused as they are on the debt problems in southern Europe. Until the markets see evidence of those states starting to structurally reform, confidence in the euro looks set to be thin on the ground.”