Market anticipates further Euro weakness as leaders struggle to form consensus at Summit

Tom Tong28/Jun/2012Currency Updates

EUR

The 17-nation currency remained lower against the dollar following a three-day decline before an Italian debt auction today and data forecast to show economic confidence in the euro bloc deteriorated. EU leaders meeting today and tomorrow are due to discuss a plan that analysts see playing out over more than a decade for closer European integration and cap their latest effort to check the financial crisis that claimed Cyprus this week as its fifth victim.They prepare for yet another summit to tackle the eurozone crisis: a bond auction fails in Spain, spreading solvency worries to Italy and beyond and triggering uncontrollable bank runs that spell the single currency’s end. They will have to convene for the first time since pro-bailout parties won at Greek parliamentary elections on June 17.

Market players expect European leaders to struggle to agree on bold steps to solve the region’s debt crisis as consensus breaks down on safeguarding governments in Spain and Italy, with German Chancellor Angela Merkel rejecting calls to do more to cut their borrowing costs. Italy is scheduled to sell 2.5 billion euros ($3.1 billion) of five-year notes and 3 billion euros of 10-year debt today, following two auctions this week that saw borrowing costs increase.

GBP

The pound weakened after an industry report showed U.K. mortgage approvals fall to their lowest level in more than a year, supporting the case for the central bank to resume stimulus measures. On the other hand, Barclays Plc was fined 290 million pounds ($451 million), the largest penalty ever imposed by regulators in the U.S. and U.K. This made sterling drop against all of its major peers.Credit rating agency Moody’s last night placed its rating for Santander UK under review for a possible downgrade.

USD

The dollar slid versus most major counterparts as gains in stocks supported demand for higher- yielding assets and Asian stocks rallied for a second day. Orders for durable goods and the number of Americans signing contracts to buy an existing home rebounded in May, easing concern the world’s largest economy is faltering, but a cooling global economy suggested the momentum might not be sustained.

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Written by Tom Tong

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