Euro Sinks Below $1.31 Despite Ireland Bailout

The euro fell below $1.31 for the first time since Sept. 21 on Monday as an announced EUR85 billion rescue of Ireland failed to calm concerns of more euro zone contagion.



Rather than ease fears, traders immediately focused on Portugal, Spain and Italy, which also suffer from a lack of investor confidence, several analysts said.

"It hasn't stopped the contagion elsewhere," said Robert Lynch, currency strategist at HSBC in New York. "If the expectation was that it would quell some of that fear, it has so far not succeeded. Italian bond spreads are up, Belgium bonds spreads are up," he said.

Portuguese, Spanish and Belgian five-year sovereign debt credit-default swaps widened to record levels after the Ireland rescue news overnight. Also, an Italian government debt auction met with weak demand.

"I expect the euro will go to $1.20-$1.10 in the next two months," said Ken Jakubzak, principal of currency-trading hedge fund KMJ Capital, which manages $10.5 million and is based in Lake in the Hills, Ill.

European Union finance ministers had hoped to ease concerns about the long-term viability of the euro zone and its currency by injecting massive amounts of liquidity to address Ireland's fiscal stresses. Unable to borrow due to exorbitant interest rates needed to sell new Irish government debt, Ireland will obtain EUR10 billion to be used for immediate recapitalization of the troubled banking sector. Ireland is now able to borrow money at a competitive interest rate of less than 6%