Euro steadied against the dollar during the European session, but made minor moves and only gained 0.3 percent from the open level. Market participants are not sure what direction to take as many uncertainties still lie ahead in the euro zone as the debt crisis is far from over. EURUSD opened the European session at 1.2490 and edged up to a high of 1.2528 but gains are expected to be limited.
Euro remains vulnerable despite Spain taking measures to try and shore up its troubled banking sector by requesting a bailout from the EU. This only provided temporary relief to markets on Monday and briefly boosted the euro. The additional financial aid only adds to the already burdened Spanish government. Spanish 10-year bond yields rose against today heading closer to the dangerous 7 percent level, which is considered unsustainable in the long-term. Meanwhile, adding to market jitters is the Greek election on Sunday, which will determine if the country will remain in the euro zone.
Sterling fell after weak manufacturing production data raising speculation over a fresh round of easing from the Bank of England. GBPUSD fell to a session low of 1.5453 but subsequently retraced due to profit-taking to a high of 1.5545.
Yen weakened as market sentiment strengthened, thereby reducing demand for the safe haven currency. Market participants are weary of letting yen appreciate further after the IMF said earlier today that the currency is “moderately overvalued”. This raises caution ahead of the Bank of Japan policy meeting this week in case the banks decided on more easing to weaken the yen. This helped the euro rise 0.4 percent to 99.77 yen. USDJPY held steady between 79.43 and 79.68.
The Australian dollar held onto gains against the US dollar in the Europe session and consolidated between $0.9875 and $0.9929.