The euro fell by 0.8 percent on the day against the dollar as investors are increasingly concerned that the eurozone debt crisis will move beyond the periphery to contaminate the larger economies like Italy. Italian borrowing costs continue to rise despite the appointment of former EU Commissioner Mario Monti to head a new government in Italy. Spanish yields also rose ahead of the launch of a new 10-year bond on Thursday. Additionally, the spread of French, Belgian and Austrian 10-year bond yields over German Bunds hit euro-era highs. The ZEW Center for European Economic Research released its index of investor and analyst expectations which showed investors confidence declined to its lowest since October 2008. EURUSD fell to a European session low of 1.3511 from 1.3632 before bouncing to 1.3563.
Sterling fell against the dollar as investors sold the pound ahead of inflation data which forecasts a gloomy picture of the UK economy. CPI gave a lower reading than expected at 5.0 percent versus 5.1, and lower than the previous month’s 5.2 percent. Easing inflation could fuel speculation that the Bank of England may consider more quantitative easing which results in a weaker pound. GBPUSD fell to 1.5826 from 1.5925 following the news.
The yen remained firm against the dollar in this risk averse environment. USDJPY on two occasions jumped to as high as 77.10 but gave back all gains falling back to.76.92. Spain raised less than its maximum target at a bond auction today and financing costs rose, spurring demand for safer assets like the Japanese currency.
The Swiss franc weakened against the US dollar struggled on speculation Switzerland’s central bank may take more measures to curb franc strength. The dollar hit a one-month high versus the Swiss franc as the U.S. currency gained across the board boosted by demand for the safer and more liquid US dollar in a risk averse market as investors want to protect against uncertainty in Europe. USDCHF rose 1.06 on the day to hit a high of 0.9176 in European trading versus the Asian open of 0.9080.