Outgoing European Central Bank president, Jean-Claude Trichet spoke before the European Parliament’s Economic and Monetary Committee in Brussels this morning, warning of systemic risk from the sovereign debt crisis He said the crisis has reached a “systemic dimension,” and threatens the financial system.
Trichet’s comments and grave opinions brought home the realization that fundamental challenges still exist in Europe. Meanwhile, as his words affected market sentiment and risk appetite, a vote is underway in Slovakia, the only country in the euro zone that hasn’t ratified the new measure of the EFSF bailout fund. There is a divide in the Slovak coalition government and a risk of the vote not passing through today, which could weaken sentiment on the euro.
The ECB chief’s grim speech as well as concerns of the outcome of the Slovak vote made markets cautious today. Risk currencies were mostly affected, with the South African Rand leading the drop among major currencies against the dollar. South Africa’s rand retreated 1.4 percent resulting in USDZAR rising to 8.002 by 0900 GMT today.
The Australian dollar, another risk currency, declined against the greenback on the Slovak vote concern which is damping demand for higher-yielding assets.
Another commodity-price sensitive currency, the Canadian dollar, depreciated versus its U.S. counterpart as crude oil, Canada’s largest export, fell today before the vote by Slovakian lawmakers. The loonie fell not long after Trichet’s speech as USDCAD rose to a high of 1.0337.