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The euro dipped below $1.30 to sink further into a two-month trough against the dollar as there appeared no end in sight to the eurozone debt crisis.
The focus switched from Ireland following details of its bail-out over the weekend to other peripheral eurozone sovereign bond markets as the premium investors demand to hold Spanish and Italian debt over German benchmark equivalents rose to euro-era highs.
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Yields jumped to push the spread between Spanish and German 10-year bonds 20 basis points higher to 297bp, and the spread of Italian over German bonds jumped t0 210bp.
Lee Hardman at Bank of Tokyo Mitsubishi UFJ said: “The poor bond market reaction is an indication that the market is worryingly losing confidence in the European authorities’ ability to deal effectively with the eurozone sovereign debt crisis.
“It is much harder to regain confidence than lose it.”
A severe drain on sentiment in the euro would be if one of the larger periphery economies – such as Spain or Italy – were to ask for financial assistance, analysts added.
Jane Foley at Rabobank said: “In terms of GDP, Spain is almost twice the combined size of Greece, Ireland and Portugal and it would be a struggle for the European Financial Stability Facility to meet the amounts that would be required should a bail-out be requested,”.
Meanwhile the bearish signals for the euro continued as the currency fell further below its 200 day moving average of $1.3130 against the dollar.
Further good news from the German economy did nothing to help the euro’s fortunes, but served only to highlight the dual-speed nature of the eurozone as German unemployment fell by 14,300 to 2.9m keeping the jobless rate steady at 7.5 per cent.
By mid-morning in Europe, the euro was down 0.7 per cent to $1.3019 against the dollar, a fresh two-month low. The single currency was down 0.5 per cent to £0.8383 versus the pound and off 1.1 per cent to Y109.33 against the yen.
The dollar was again a strong performer as investors sought a haven from the crisis. It rallied 0.3 per cent to Y83.93 against the yen.
Weaker consumer confidence than expected kept the pound under pressure leaving the UK currency down 0.2 per cent to $1.5533 against the dollar, and 0.6 per cent lower versus the yen at Y130.37.
