Yield’s on Spanish benchmark government bonds spiked to a euro era high while France was also forced to pay an uncomfortably high price in debt markets as Europe’s debt crisis shows no signs of abating. The euro could easily have given way under the pressure after already falling to five-week lows against the US dollar; however, investors chose to take heart from an announcement from Mario Monti, Italy’s new head. Shortly after winning a vote of confidence, Mr Monti outlined his new anti-crisis battle plan which he hopes will bring much needed calm to European bond markets. Sterling also rebounded higher after dropping versus the US dollar subsequent to UK retail sales data completely outstripping expectations, rising by 0.6 per cent over the month to October. Stock market instability and the explosive nature of the eurozone debt crisis is keeping currencies such as the Australian dollar weak and investor confidence low.
Sterling
Sterling regained its poise against the euro and also ended the day comfortably above its three-week low against the US dollar after UK retail sales outstripped forecasts, rising the most since June. Despite optimism aggregate demand within the economy may hold up amid chaos in neighbouring eurozone countries, the Bank of England’s most up to date prediction of sluggish growth until mid-2012 will still leave sterling vulnerable to further weakness against both the Japanese yen and US dollar.
US Dollar
Stock market jitters and unfinished European woes continue to allow the US dollar to post fresh multi-week highs against its riskier rivals such as the Australian and New Zealand dollars. The US’s very own debt concerns are beginning to creep back into market sentiment which helps explain the dollar’s decline against the euro, pound and yen.
Euro
The euro managed to steady, snapping a three-day decline which had earlier led the single currency to five-week lows against the US dollar. It could easily have been worse after government borrowing costs for both France and Spain moved sharply higher with the yield on Spain’s 10-year bonds reaching euro era highs just short of seven per cent. However, investors chose to take comfort from Italy’s pledge to fix its economic mess instead.
Japanese yen
Not only are Japanese authorities fretting about the yen’s “overvaluation” against the US dollar, but developments in Switzerland are also being monitored as traders continue to diversify funds out of the safe harbour Swiss franc.
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