San Francisco, CA (PRBuzz.com) November 19, 2012 -- Bogged down by falling euro-zone industrial output and an upcoming vote by the Greece government on its 2013 budget, the euro dropped to a two-month low against the U.S. dollar and Japanese yen on Friday.
The potential recession in Europe has the potential of having a domino effect on the global economy, according to BK Asset Management's managing director of FX Strategy Boris Schlossberg.
"It's the core Europe now, not just the peripheral Europe, that may be sliding into a recession," Schlossberg said. "If that happens, then China will lose its export market and the whole global economy will begin to contract. The market is really afraid that Europe could drag the whole global economy down."
The euro dropped below $1.27 for the first time since Sept. 7. By late afternoon, the euro rallied slightly to end the day at $1.2716, down from $1.2747 on Thursday. The euro finished at 100.38 yen, a one-month low.
Uncertainty about the Greek debt negotiations has caused the euro to fall 2% against the dollar already this month. Depending on what happens during Sunday's vote, the next round aid could be released to the Greek government by its international creditors.
The euro is not expected to recover anytime soon. In addition to the industrial output news and the uncertainty around the Greece vote, other factors, such as whether Spain will request financial aid may lead to further downward trending.
"There has been a rather poisonous cocktail that is dragging the euro down with weak European numbers today and renewed fears of the euro zone crisis with Greece back on the agenda," head of FX strategy at Danske markets Arne Lohmann Rasmussen said. "We would not be surprised if we saw the euro drop to the $1.25 level within the next three to four weeks."
The euro was not the only currency that the dollar gained against on Friday. The Australian dollar dropped to $1.0388, down from $1.0405 the previous day while the U.K. pound fell from $1.5983 to $1.5900. The U.S. slipped slightly against the yen.
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