Euro falls as eurozone government bond yields rise

The euro plummeted yesterday on doubts the new technocratic governments in Italy and Greece will be able to implement the necessary reforms to solve the debt problems in their highly-indebted countries. Risk aversion in the market is heightened after Italian and Spanish government bonds came under selling pressure. An Italian government 5-year bond auction ended with 3 billion euros of bonds sold at the record high yield of 6.29% fuelling worries about the country’s ability to avoid a default. Spanish 10-year government bond yields also climbed above 6% for the first time since August. Focus now turns to an auction of Spanish short-term bonds today. Eurozone third quarter Gross Domestic Product is also expected today and weaker than expected data would raise fears that the region may be sliding back into recession. Versus the dollar, the euro dipped below the 1.36 level falling as low as 1.3575 from 1.3788.

The US dollar edged higher against a basket of currencies yesterday as high risk aversion spurred a higher demand for the safe haven currency. Attention shifts to a series of economic data in the US including Retail Sales, Manufacturing Index and Producer Price Index.

The Australian dollar fell against the dollar after the release of the Reserve Bank of Australia policy meeting minutes. The minutes showed the central bank’s growing fears about a global economic slowdown but there was no sign that further rate cuts will follow. The pair dropped as low as 1.0159 from 1.0336, a decline of 1.7%.

Oil prices edged lower hitting 97.18 dollars a barrel from 99.27. Gold also slid yesterday to 1735.82 dollars an ounce from 1802.58. Silver fell to 33.13 dollars an ounce from 35.31.

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