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Euro to Weaken as Greece Saps Confidence, Morgan Stanley Says
Jan 22,2010 08:39CST
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Jan. 22 -- The euro will weaken further against the dollar as Greece's budget crisis calls into question the currency's credibility and the ability of European Union institutions to address deficits, Morgan Stanley said.

The 16-nation currency fell for a sixth day versus the greenback, its longest losing streak since October 2008, amid concern Greece will fail to contain its budget deficit. European finance ministers said on Jan. 19 the crisis is affecting other nations, the same day Moody's Investors Service said the success of the government's budget plan "cannot be taken for granted."

"The euro is coming increasingly under pressure from the ongoing events in Greece," Emma Lawson, a foreign-exchange strategist at Morgan Stanley in London, wrote in a research report today. "It boils down to credibility: The credibility of the Greek government in meeting their targets, the credibility of the EU institutions to deal with non-compliant states and the credibility of the euro itself."

The euro fell 0.2 percent to $1.4084 at 5 p.m. in New York and declined 1 percent to 127.37 yen. Selling the euro is one of Morgan Stanley's "top 2010 trades" and the financial institution predicts declines to $1.28, Lawson wrote.

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