Market jitters pushed the single currency to the lowest level since July 2011 in the European trading session as investors are nervous about the Spanish banking crisis and fear that surging borrowing costs from rising Spanish bond yields would lead to the country requiring a bailout. Euro briefly recovered some losses in reaction to news that the EU is willing to envisage direct ESM bank recapitalization. This helped EURUSD bounce from a 23-month low of 1.2423 to 1.2470 but was unable to sustain the rally and fell back down.
GBPUSD also bounced on the news to 1.5613 from a low of 1.5549. Sterling had fallen to a new four-month low against the dollar, weighed down by the turmoil in Europe. Despite some good UK data which included an increase in mortgage approvals and money supply (M4 up to 1.1 percent), the focus was on euro zone debt crisis.
Yen strengthened as risk aversion rises on the back of an escalation in the European crisis. USDJPY continued to trend lower, testing the psychologically important 79.00 level. EURJPY reached 98.20, the lowest level since January, as euro was weak across the board.
Aussie continued to underperform on a combination of weak domestic data and higher European induced risk aversion. Also news from China that any fiscal stimulus plan will not be as large as the 2008 package weighed heavily on aussie today. AUDUSD touched a low of 0.9745. There was a brief bounce to 0.9798 on news that the EU proposed direct ESM bank recapitalization for euro zone banks.