Forex Market Review – Euro extends losses as Italian bond yields reach euro-era highs

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Euro continued to be under pressure today and broke below the critical $1.30 level against the dollar. Market sentiment was damp after the rise in Italy’s borrowing costs at a bond auction this morning. Yields surged to euro era high making investors concerned over the Italy’s ability to continue raising funds at sustainable levels.   Italy paid a record 6.47 percent on its new five-year bonds, compared with the previous record of 6.3 percent set in November.


Meanwhile markets are jittery over a Standard & Poor’s warning of a downgrade of euro-zone countries. Results of the credit ratings agency are due any time this week.EURUSD reached the lowest level since January, touching 1.2964 versus the European open of 1.3034.


The US dollar was lifted due to the big sell-off in the euro due to investors turning to the perceived safe haven greenback which is the world’s most liquid currency. Dollar has been stronger after the Federal Reserve said in a statement on Tuesday that the crisis in Europe posed a big risk to the U.S. economy. The Fed also refrained from boosting its easing measures this month. The dollar index which tracks the dollar value against a currency basket, rose as high as 80.458.


Dollar rose to an almost ten-month high against the Swiss franc at 0.9494 francs rising from 0.9450. The Swiss ZEW Economic Expectations fell sharply indicating a deteriorating sentiment on the Swiss economy.


Sterling opened the session at 1.5489 against the dollar and briefly rose to 1.5531 but soon fell to 1.5467. Sterling lacks the momentum to push higher on its own and much of the direction of the pound is due to euro weakness. Further weighing on the pound was UK jobs data which showed the number of unemployment Britons reaching a 17-year high. The pound rose for a third day against the weaker euro. EURGBP fell from 0.8414 to 0.8372, the weakest level since February 18.


USDJPY rose to 78.15 from 77.93 while EURJPY reached its lowest level since October 4 at 101.25.


Gold prices dropped as much as one percent on the day to hit its lowest since late October after a fresh decline in the euro and a riskier environment encouraged more investors to sell bullion for cash in US dollars instead. Gold and USD have an inverse relationship so when dollar rises, gold falls. Gold fell to $1,622.74 from $1,638.79.