The euro hit a six-week low against the Japanese yen in the European trading session, touching 103.21. Against the dollar, the single currency slipped to the day’s low of 1.3437 as investors continue to fret about the euro zone’s debt problems. Spain’s election results showed little comfort. An overwhelming vote in favour of a new government failed to instill optimism about the Spanish government’s ability to deal with its economic problems.
The yield spread between Spanish and German 10-year government bonds yawed 10 basis points to 453 basis points, while the Italian/German spread also expanded.
The European Central Bank’s unwillingness to commit to large-scale bond purchases and Europe’s deteriorating economic backdrop mean global financial markets will remain affected by the stresses in Europe, which will continue to hurt the euro.
The bearish market also affected cable. Sterling tumbled to a four-week low in the London trading session today, touching 1.5666.
Sterling is vulnerable against the dollar with investors looking to sell on rallies given a fragile UK economy and the likelihood of further BoE asset purchases
Meanwhile, market sentiment is also weighed down by US debt woes as the so called ‘supercommittee’ fails to reach an agreement in budget cuts over the weekend.