The euro tumbled 2 percent on the day falling to a four-week low in European trading as Italian government borrowing costs surged toward unsustainable levels risking deepening the euro zone debt crisis. The yield on the benchmark 10-year Italian bond jumped well above 7%, which are levels that pushed Greece, Ireland and Portugal to seek bailouts. The initial positive impact of Berlusconi’s promised resignation last night has faded today as investors realize that now there is a political vacuum and there is lack of clarity on where Italy will go from here. Meanwhile Greece still lacks a Prime Minister as there is a stalemate on deciding who will replace Papandreou. EURUSD fell to 1.3579 from the European high of 1.3824.
The British pound fell sharply against the dollar whose perceived safe haven status makes it in demand in a risk-averse environment today. Sterling was further weakened by weak data that showed the UK trade deficit deteriorated to its widest on record in September. GBPUSD fell to a session low of 1.5928 from an early high of 1.6114.
The Japanese yen gained against the euro and the dollar today. EURJPY fell to a session low of 105.55, losing almost 2 percent on the day since the Tokyo session. USDJPY also remained weak hovering at its lowest level since the BOJ intervened to weaken the currency on October 31.
The Canadian dollar weakened against the safer and more liquid US dollar as a risk-off market affected the risk sensitive loonie. Also falling crude oil prices weighed on the CAD as Canada is a major oil exporter. This lifted USDCAD from a European low of 1.0100 to a two-day high of 1.0230.