Greece may be resolved for now, but bigger problems exist

The euro stabilized on international foreign exchange markets on Tuesday after an initial spike prompted by lenders’ agreement to unfreeze aid to Greece, as skepticism among investors regarding the state of the broader economy of the 17-member eurozone resurfaced.

The euro was trading at $1.2965 under such circumstances, meaning it remained almost unchanged compared to the previous day’s closing. It holds significantly below the one-month high of $1.3010, which it briefly reached during Asian trading.

The dollar was slightly up against the yen, trading at 82.14 yen. It remained below the seven-and-a-half-month high of 82.84 yen, which it reached in the second half of last week.

After twelve hours of negotiations, the finance ministers of the 17 eurozone member states and the International Monetary Fund (IMF) reached an agreement on the disbursement of aid to Greece and a series of measures that should enable a significant reduction of Greece’s public debt over the next ten years.

Analysts believe that the agreement on aid to Greece will bring only temporary relief and expect that the euro will continue to be exposed to selling pressures, particularly against the dollar, due to deteriorating economic prospects in the context of implementing strict austerity measures in several countries.

– The initial reaction was positive for the euro, as markets breathed a sigh of relief immediately after the agreement was reached. However, a more detailed insight into the agreement dampened the good mood, – said Niels Christensen, currency strategist at Nordea Bank.

– The problem of Greece may be resolved for now, but there are bigger problems, such as Spain, which will be very difficult to resolve given the gloomy growth forecasts for the eurozone, – he added.

In the past two weeks, the euro has strengthened against the dollar by almost two percent, drawing support from expectations of a soon-to-be-reached agreement on resolving Greece’s debt issues. It was also buoyed by the optimism of market participants who expect a swift agreement among U.S. lawmakers to prevent automatic cuts in spending and tax increases at the end of this year or the beginning of next year.