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Euro Bounces Back But For How Long?

Global stock markets have staged a good comeback this morning as risk appetite returns. The euro has also recovered ground against the dollar and the pound on optimism that Ireland may soon see a solution to the debt problems in the form of a government bail out funded by other European nations.

Sentiment concerned with the Irish debt crisis ebbed after Dublin agreed to work with the IMF on steps to shore up its banking sector, the news has impacted on the foreign exchange markets by sending the euro up as much as 1 percent against the dollar and close to 1% against the pound.

Last time this happened it was the Greek economy in trouble and foreign exchange rates responded in the same manner, when the bailout was agreed it was back to business as usual and the Euro tested new highs against the majors. This time the situation is slightly different, Euro skeptics are ramping up for a full blown attack on the concept of a single currency, and some leading economists are saying that the experiment has failed.

Analysts are skeptical any rebound in risk appetite will be sustained, with fiscal problems in Ireland and other peripheral euro zone countries such as Portugal still severe and many investors inclined to cut risk exposure before year-end.

“It’s absolutely vital for the authorities to take proactive steps in order to try to resolve this crisis as soon as possible. The market should see some relief in relation to that,” said Henk Potts at Barclays Wealth.

“We view this as a short-term speculative rally in the euro, driven by weaker U.S. CPI and some optimism for Ireland as the IMF and EU arrive in Dublin for talks,” said Manuel Oliveri at UBS in Zurich.