By Nikoletta Panteli
EUR/USD
The Euro weakened at the start of the new week against the US Dollar on heightened risk aversion in the market. The pair opened at 1.2269, rose to 1.2333 and later traded near two-year lows falling to 1.2235, a 0.8% decline. Investors are now worried about the escalating problems in Spain’s banking sector while the Spanish borrowing costs remained elevated. Risk appetite in the market remains fragile with poor US earnings and growing uncertainty in Europe. Investors remain cautious as the pace of developments towards a solution to the eurozone debt crisis is not enough to boost sentiment in the market. Spain, which has officially asked for a bailout plan, unveiled a package of measures to reduce its fiscal deficit. Spain has reached an agreement to gain one extra year to reach its deficit reduction target while the Spanish Prime Minister Mariano Rajoy announced a new tax plan in order to trim the deficit by 65 billion euro until 2014. Risk aversion in the market was heightened after hopes for a quick activation of the eurozone bailout funds by the German court started to fade. These fears raised Italian and Spanish bond yields near the 7% level fueling concerns about the eurozone’s ability to take decisive measures to tackle the debt problems. Focus now turns to today’s FOMC meeting minutes and whether they will reveal any signs for a third round of quantitative easing by the Federal Reserve, which may weigh on the Greenback.
GBP/USD
The British Pound rose versus the US Dollar at the beginning of this week. The pair opened at 1.5478 and rose as high as 1.5577. Sterling jumped today on poor US corporate earnings, but remains fragile as the political deadlock in Greece and the deepening problems of the Spanish banking sector weigh on risk appetite. Bank of England Governor Mervyn King sounded pessimistic warning that the UK economy has shown only a few signs of recovery and expressed the Bank’s concerns for the export outlook.
EUR/JPY
The single currency plummeted versus the Japanese Yen this week weighed by political uncertainty in the eurozone. Investors are concerned about a messy Greek default and exit from the Euro while the Yen attracts safe haven demand as uncertainty in the markets is heightened. The pair opened at 97.55 this week and slid as low as 97.09, a 0.5% decline. Focus turns to tomorrow’s interest rate decision by the Bank of Japan (BoJ). Investors are expecting BoJ to hold its monetary policy unchanged despite easing moves by the European Central Bank and the Bank of England last week.
EUR/GBP
The single currency edged lower against the British Pound this week falling to 0.7882 after the pair opened at 0.7925. Sterling appears strong, supported by its safe haven status. Its triple-A rated government bonds attract increasing demand while the eurozone is suffering from stagnation in economic growth. Focus remains on the eurozone periphery countries such as Spain as Spanish bond yields are trading near the 7% level.
USD/CHF
The Greenback rose against the Swiss Franc this week with the pair opening at 0.9789, dropping to 0.9737 and later climbing as high as 0.9814. Deflation continues to be a threat for the Swiss National Bank (SNB) putting pressure on it to intervene in the currency markets in order to weaken the Franc. The SNB has set a floor at 1.20 in September for the Euro versus the Swiss Franc in order to protect its export.