The euro slid to start the new trading week Monday as investors grow increasingly pessimistic that any major announcements will come out of the upcoming European Union summit. Spain and Cyprus formally requested bailouts Monday, becoming the fourth and fifth members of the 17-nation common currency bloc to ask for aid adding to the euro’s woes. The countries, however, didn’t request specific amounts of funding and no details on terms or conditions for the support are known, adding to uncertainty permeating the market. That uneasiness added to the euro’s weakness throughout the session.
The EUR fell to $1.2504 from $1.2574 late Friday. The common currency was at Y99.61 against the JPY late Monday from Y101.14. The USD declined against the yen, falling to Y79.65 from Y80.43. The decline in the euro Monday led a broader move in the market of investors seeking out safe havens such as the USD and JPY.
The summit, scheduled for Thursday and Friday, is looked at as a key moment for EU officials to finally announce details about plans that could stem the region’s smoldering debt crisis and how to jump-start a stagnant economy. But market participants are already starting to minimize expectations a few days before the summit begins. Officials still seem to be pretty far from agreeing on topics like banking regulation union and deposit insurance based on recent comments made by European leaders. Monday’s move toward perceived safe havens is likely to continue to the summit, and potentially beyond.
The euro was also hurt by renewed pressure on bond yields throughout the region. The yield on 10-year Spanish debt climbed back to 6.59% after falling steadily at the end of last week to yield 6.34% Friday. Sharply rising bond yields provide a reminder about how nervous traders are about the health of Spain and other countries in the euro zone. Even Germany’s bond yields, considered the safest investments among euro-zone sovereign debt, have climbed in recent weeks because of uncertainty over exactly how much money Germany will have to provide weaker euro-zone members.
EasyForexNews Research Team