Italian Yields Weaken the Euro | IFCM India
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Italian Yields Weaken the Euro - 15.11.2011

US Dollar Asian stocks lost ground, paring yesterday’s advance and following declines of the major European and US stock indices. The reason of concerns is Italy, where borrowing costs are climbing higher. The S&P 500 lost almost 1% yesterday and the Japanese Nikkei Average dropped by 0.72% by the end of the Asian session. Amid a continuing uncertainty investors are showing an increasing demand for Treasuries – the yield for 10-year notes dropped to 2.04%. The dollar strengthened as well, rising against all its major counterparts, except the yen, and sending the US unit's index, which measures its performance against a basket of six currencies, to 77.54 from 76.85. The head of the Federal Reserve Bank of Dallas, Richard Fisher, said yesterday that the US economy is “poised for growth” going into next year and that he sees a declining likelihood that the central bank will need to ease its policy further. “The direction we’re moving in is positive,” the policy maker said in an interview to Bloomberg. Nevertheless today a retail sales report may show the measure rose by 0.3% in October, after a 1.1% increase in the previous month. Euro The euro lost ground yesterday against the dollar as Italy’s borrowing costs surged after the country tested investors demand for 5-year debt securities. The yield climbed to the highest since June 1997 - 6.29%, up from 5.32% at the previous auction. At the same time Spain is preparing to hold an auction of short-term debt as soon as today. Spanish 10-year notes’ yield increased yesterday as well to 6.11%. If investors show low demand at today’s sale, the single currency may weaken further. The major European stock indices also dropped yesterday - German DAX lost 1.19%, while French CAC 40 fell by 1.28%. The downward pressure increased after German Chancellor Angela Merkel’s Christian Democratic Union proposed to allow a “voluntary” exit from the currency bloc, but remaining in the wider European Union. The region’s economic growth meanwhile is showing signs of deceleration. Yesterday reports showed that industrial production in the euro area plunged by 2% in September. Today the third quarter growth data will be released. According to preliminary estimations, the annual pace slowed to 1.4% from 1.6%. Yesterday the euro fell from 1.3791 to 1.3590 against the dollar but remained slightly above 1.36 in Asian trading hours. Australian Dollar The Reserve Bank of Australia published this morning the minutes of the latest policy meeting, when it cut the target rate by 0.25% to 4.5%. According to the minutes, the bank decided to make a step toward “a modest easing” of monetary policy amid a declining inflationary pressure in the country and due to increasing global risks. “There had clearly been material changes to the recent course of, and outlook for, underlying inflation over recent months, while the downside risks for the global economy had increased,” the Bank said. As a consequence of a lower inflation “a more neutral setting would, on this view, be compatible with achieving sustainable growth” it concluded. Despite the minutes reaffirmed that there is no immediate need to ease the policy further, the Aussie remains under pressure against the dollar. In the morning the currency dropped to 1.0159 from yesterday’s high at 1.0340.
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