Euro fell back below $1.25, dropping sharply against the dollar in reaction to a series of negative news flow. Disappointing German employment data and falling euro consumer confidence indicators added to risk aversion that is already high ahead of the EU Summit later today. Meanwhile yields in Spain and Italy continue to rise, with the 10-year bond yields back above 7.0 percent in Spain and 6.25 percent in Italy. These levels are difficult to sustain in the long term.
The fall in the euro accelerated after a German government source said said the EU summit would produce no detailed decisions. Germany is against joint liability in the form of a joint eurobond. Other euro zone countries are in favour because it would help bring down borrowing costs for the weaker euro zone countries. But Germany does not want to use its credit rating to support other members unless they first agree to a stronger fiscal union and share control of taxing and spending powers.
EURUSD tumbled 0.9 percent to 1.2406, the lowest level since June 4, finally breaking out of its range it has been holding in the past three days.
GBPUSD fell to 1.5524 from an early high of 1.5622. Sterling fell in reaction to the headlines from Europe as well as due to its own domestic data. Weakness in the UK economy has been confirmed after the release of a slightly weaker final print for Q1 GDP. This increases the likelihood of further easing from the BoE, which would weigh on the pound.
Yen gained 0.5 percent against the dollar driven by safe haven demand as markets are cautious ahead of the EU Summit today. USDJPY dropped to a low of 79.21 in the European session after breaking a key support level before steadying back to 79.40. EURJPY fell to 98.31 from 99.43.