FOREX-Euro slides to 7-week lows as Italian yields soar

Fri Nov 25, 2011 10:07am EST

Related Topics

* More losses seen in euro, support at $1.3144, $1.3045
    * Italian yields soar after weak auction
    * Safe-haven flows buoy dollar to 7-week high vs basket

    By Wanfeng Zhou
    NEW YORK, Nov 25 (Reuters) - The euro slid to a more than
seven-week low against the U.S. dollar on Friday and was set to
weaken further as a disappointing Italian auction stoked fears
the euro zone crisis was deepening.
    Italy paid a record 6.5 percent to borrow money over six
months on Friday and its longer-term funding costs soared far
above levels that are seen as sustainable. The rise in
borrowing costs came even as the European Central Bank (ECB)
bought bonds in the secondary market.
    Signs the euro zone debt crisis was threatening the
region's biggest economies such as France and Germany have
raised fears of a breakup of the currency bloc. Policymakers
remained in disagreement over how to resolve the crisis, with
Germany opposed to joint euro zone bonds and a bigger role for
the ECB.
    "The market is rapidly growing impatient, and with no
comprehensive plan in place for Europe, the mood is
deteriorating rapidly, in turn weighing heavily on debt and
currency markets," said Camilla Sutton, chief currency
strategist at Scotia Capital in Toronto.
    The euro fell 0.7 percent to $1.3253, having dropped
as low as $1.3210, based on Reuters data, its lowest since Oct.
4.
    Key support lies around $1.3144, the euro's October low,
followed by $1.3045, the 61.8 percent retracement of its
2010-2011 rally.
    The euro has lost about 1.9 percent this week and was on
track for a fourth straight week of losses. It came under heavy
pressure after lackluster demand at a German bond auction on
Wednesday.
    Italy's two-year yield rose to a euro-era high above 8
percent and 10-year yields traded above 7 percent, a level that
is seen as unsustainable.  
    Belgian bonds were also under pressure ahead of auctions
next week.
    The dollar rose to a seven-week high versus a currency
basket as investors sought the liquidity and perceived
safety of the U.S. currency.
    "Unless we see firm action from European authorities, the
market is betting the worst is about to happen and the dollar
is therefore well bid on demand for liquidity," said Jane
Foley, currency strategist at Rabobank.
    Against the yen, the dollar rose 0.7 percent to 77.64 after hitting a two-week high of 77.12.
    The euro hit a seven-week low of 102.46 yen based
on Reuters data, before rebounding to last trade at 102.98, up
0.1 percent on the day.
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