A combination of strong U.S. employment data and relentless fears about Europe’s debt troubles sent the EUR tumbling Friday to a new 15-month low against the USD and its weakest level in 11 years against the JPY. The common currency shed more than 2 cents on the week, reversing sharply from a relief rally that had moderately encouraged some traders. Although successful debt auctions in Italy, France and Germany showed investors still have an appetite for European debt, the EUR was unable to overcome the pessimism that has walloped markets worldwide for the last two years.
The EUR woes deepened after data showed U.S. employment accelerated in December by more than 200K jobs, which drove unemployment to its lowest level since February 2009. While encouraging data normally leads investors to buy riskier stocks and currencies, the figures bolstered the greenback across the board.
As Italy’s benchmark government debt lodged above 7%, traders abandoned the common currency, driving it briefly below $1.27 for the first time since September 2010. The euro zone’s third largest economy has pressed forward with austerity measures to restore investor confidence, yet its efforts have yet to quell selling pressure on its debt markets that could prompt it to seek a bailout of its EUR2 trillion bond market.
Friday’s employment data underscored the growing divide between the crisis-hit euro zone, and a surprisingly buoyant U.S. economy that’s become an unlikely beacon of stability in a turbulent global economy.
Late Friday, the EUR was at $1.2716 from $1.2789 late Thursday, according to EBS via CQG. The USD was at Y76.96 from Y77.12, while the EUR was at Y97.92 from Y98.69, its lowest since December 2000. The GBP was at $1.5420 from $1.5483. The USD was at CHF0.9550 from CHF0.9529.
The European Central Bank again waded into government bond markets to buy debt issued by the Italian and Spanish governments, an emergency measure that has barely contained selling pressure on those countries bonds.
Analysts are now awaiting next week’s ECB policy meeting for indications as to whether the central bank will unveil new policy measures to halt the rot in bond markets. Yet nearly lost in the market’s emphasis about Spain and Italy have been renewed worries about Greece. Earlier this week, the debt-strapped country warned that a failure to finalize a write down of its debt pile and negotiate bailout terms could lead to a messy default that endangered its status in the euro area.
EasyForexNews Research Team