Spanish 5 and 10 year bond yields reach critical levels as Euro slumps against pound and dollar

Tom Tong24/Jul/2012Currency Updates

GBP

Sterling climbed to a more than 3-1/2 year high against a tumbling euro on Monday as worries over Spain and Greece’s debt problems drove investors to the relatively safe haven of the UK currency. Sterling lost 0.8 percent to hit a session low against the dollar in yesterday’s trading, the lowest level it has been all week. This has been pulled down by weakness as Spain’s borrowing costs jumped to new highs.

EUR

The euro slid to a two-year low against the dollar and a near 12-year low against the yen on Monday over concerns Spain will have to seek a full sovereign bailout.

Spanish bond yields soared to their highest levels since the euro was created, despite eurozone finance ministers approving on Friday terms for a loan of up to 100 billion euros for Madrid to recapitalise its banks. Analysts said this was the prime driver of the euro’s fall. Murcia became the second Spanish region to request financial assistance from the government, after Valencia, with media reports suggesting six regions could seek aid. At the session lows of yesterday’s trading it hit a record low versus the Australian dollar,and a 9-1/2 year low versus the Norwegian crown. Worries in Greece also seemed to darken, adding only to reasons why investors are selling off the euro. The combination of both nations have sparked this broad slide on the euro, which was already weakened by ECB rate cuts earlier this month. Data from the commodity Futures Trading Commission released on Friday showed currency speculators are increasing their bets in favour of the USD and the Euro debt crisis and is impact on global growth deepens.

The euro was further hit by Moody’s, who have garnered fresh criticism for ratings agencies after putting the outlook of eurozone AAA-rated economies such as Germany, France, and The Netherlands, from stable to negative. This further signifies how the peripheral sovereign debt crisis is now taking a hold of the core. Today, German finance minister Wolfgang Schauble will meet Spanish counterpart Luis de Guindos in Berlin to discuss the future of Spain.

USD

The dollar rose to a 2 year high against the euro on monday due to the previously mentioned problems in the eurozone encouraged a strong bout of safe haven buying. The dollar index, which measures the US currency against a basket of six other currencies rose to 83.907 from 83.457 on Friday. The dollar has continued to demonstrate itself as the better of many evils, as safe haven demand has continued to drive dollar strength.

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Written by Tom Tong

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