We are all expecting Spain, Italy or Portugal to take a fall. We didn’t expect the already fallen to trip the Euro. Hungary did just that this Friday by announcing that it was having trouble meeting its public deficit goals agreed as part of the IMF bailout in 2008. The Hungary reaction spilled over into Poland and Czech Republic, sparking broader concerns about the economy and growth prospects within the Euro-zone as well as for Euro.
The double hammer for Euro was yielded by the below expectation US job reports that led to a flight to quality with investors switching back into US dollar and US treasury as forecasted earlier. Euro touched 1.1966 in late trading in New York on Friday evening. While in the long run the decline in Euro will give a much needed boost to Eurozone exports and reduce balance of payment issues by making imports more expensive, its impact will be painful in the short run on account of the slow down and the forced austerity measures in Europe.