The euro tumbled against other major currencies after Italian 10-year bond yields surged above 7 percent for the first time since the euro was introduced, reaching unsustainable levels. Investors are worried about how Italy, the world’s third-largest issuer of sovereign debt, will handle paying debt after higher borrowing costs. Berlusconi promised to step down after austerity measures are passed but many think he is just buying time. Meanwhile Greece has yet to announce a new premier to replace Papandreou. EURUSD touched a four week low of 1.3552 in the North American session, losing 2.4 percent on the day from a high of 1.3858 at the start of trading today. The single currency is expected to remain under pressure until political uncertainty is at least cleared both in Italy and Greece.
The British pound rose to the strongest level in eight months against the euro, gaining 1.1 percent to 84.99 pence. GBPUSD fell around 215 pips today to hit a low of 1.5903 as the perceived safer and more liquid US dollar gained against risk currencies today. The USD is the world’s reserve currency.
The yen strengthened against most of its major counterparts as investors turned to the traditionally safe haven asset. The yen is considered safe because the export-reliant Japanese economy does not need foreign capital to balance current accounts since Japan has a trade surplus. EURJPY extended losses in New York trading falling to a session low of 105.23 versus the 107.59 Asian session open today. Yen also gained against the sterling and the Australian dollar.
The Canadian dollar was sharply lower against its US counterpart as traders sold off risk amid a risk averse market which led commodities lower. The loonie is commodity-price sensitive as Canada is a major oil exporter, and crude prices fell today. USDCAD rose to 1.0231 in the US session gaining 1.5 percent in the last three sessions since the Asian session low of 1.0077 today.