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Euro 'faces a reality check'

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Euro 'faces a reality check'

An expert has indicated that the eurozone is facing a "reality test" when it comes to its single currency.

Chris Towner, director of forex advisory services at foreign currency exchange brokers HiFX, acknowledged that fears of the sovereign debt crisis are starting to wane.

However, he argued that the structural issues that have long plagued the European economy will continue to present issues to the euro currency.

As a result, the expert suggested that the euphoria surrounding any aversion of a potentially even more serious crisis could prove to be short-lived.

Indeed, his remarks come as the latest monthly forecast report for February composed by the German Bundesbank forecast that the country's economy could be set to improve in the near future.

Germany's economy contracted by 0.6 per cent in the final quarter of 2012 - meaning that it would be in a technical recession if it continued to shrink in the first quarter of 2013.

Despite this, the Bundesbank is positive that this will be avoided, predicting that annual growth will be 0.7 per cent by the end of the year - a considerable improvement on the zero figure recorded in 2012.

Mr Towner said that Germany has remained robust, which has allowed the weaknesses of the economies in Greece, Spain and Portugal to be counter weighed.

While the expert acknowledged that 2013 opened with a relief rally, investors may still want to think carefully about transferring money from abroad.

"If the value of the Euro does not budge, then it is worth looking at the main reason why Germany contracted in the fourth quarter - a sharp reduction in exports," Mr Towner commented.

"With the price of these exports going up in Q1, the structural issues will only increase in tandem," he continued, adding: "A rate cut may help relieve the pain, but only temporarily."

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