The euro remained vulnerable near a 7-week low against the dollar as German government bond yields hit their highest in nearly a month as investors fret about the euro zone crisis deepening. Investors ignored better than expected German business confidence data as news of Portugal’s downgrade to junk status by Fitch took the spotlight today. Sentiment was further hit by reports of troubled French-Belgian bank Dexia tapping into emergency liquidity assistance, fuelling fears of a collapse, which would hurt France’s AAA credit rating. Meanwhile, markets are focusing on a meeting between Sarkozy, Merkel and Italy’s new leader, Mario Monti, anxious to see if Germany would change their negative stance for a common euro-zone bond issue. EURUSD was lifted to 1.3410 following the positive German business confidence data but then the pair fell to 1.3352 after negative news from Europe.
Sterling traded close to a seven-week low against the dollar and was softer versus the euro. The revised GDP confirmed the UK economy grew 0.5 percent in the third quarter, but business investment and exports fell sharply. This provided little support the pound. Against the euro, sterling was slightly lower as euro was lifted by better than expected German business sentiment. Euro was up 0.3 percent at 86.18 pence before the US session open. GBPUSD fell to as low as 1.5498 from 1.5548.
EURCHF was lifted to 1.2315 after the better than expected German IFO but euro soon struggled to maintain gains and fell back down to 1.2254. USDCHF continues to consolidate, trading in a range all week but hovering near one month highs on dollar strength. Today’s highs and lows were 0.9173 and 0.9152.
The yen pared gains after Japan was warned of a downgrade by Standard and Poor’s which cited a lack of progress in tackling its public debt burden. USDJPY hovered above 77.00 and hit a high of 77.22.