Euro tumbled to a seven week low against the dollar after a disappointing German bond auction. Demand at the sale was extremely low and below this year’s average. Only Eur3.9 billion total bids were received, well below the Eur6.5 billion average of the last three new 10-year offerings.
Usually the German Bund performs well during a period of bad economic news as it is a safer government debt compared to other euro zone government bonds such as Spain and Italy for example.
However, the lack of performance in Bunds in the last two weeks or so, despite the further deepening of the Euro crisis, has also raised questions about the crisis even now extending into the heart of the core countries. It will now be hard to deny even Bunds’ invulnerability after these results.
If the German bund loses its status as a benchmark, then this does not bode well for Europe.
The euro plunged over 100 pips against the dollar to a seven-week low of 1.3372. On the day EURUSD has declined 1.2 percent.
“It perhaps goes to show the uncertainty surrounding the euro zone crisis has escalated in terms of the overall outlook to incorporate even Germany,” said John Davies, Rate Strategist as WestLB in London.