Euro fell after a Spanish bond auction which resulted in short-term borrowing costs rising as well as the 10-year bond yield hitting 6.71, nearing the critical 7 percent threshold, which is unsustainable in the long term. Overall market sentiment is damp after negative news flows from yesterday when Spain and Cyprus requested bailouts, and Moody’s downgraded 28 Spanish banks.
EURUSD opened the European session at 1.2507 and drifted lower to 1.2454. The single currency will likely remain under pressure as focus shifts to the EU Summit on Thursday and Friday. There is pessimism over whether the summit will result in new measures to tackle the debt crisis.
GBPUSD rose early in the European session from 1.5583 to 1.5638 but soon fell back down to 1.5575. Sterling is under pressure after bearish comments from Bank of England Governor Mervyn King which makes it more likely that more quantitative easing will be adopted in the next BOE policy meeting.
Yen gained against the yen and dollar, supported by safe haven flows. USDJPY continued to trade below the key 80.00 level and fell to a session low of 79.22 from 79.75. EURJPY fell from an early high of 99.81 to 98.73.
Looking ahead on the economic calendar for the U.S. session: the U.S. will release industry data on house price inflation, as well as a report on consumer confidence.