Dow Jones reported that the euro weakened broadly on January 4th 2012 after a successful German debt auction was unable to dispel investor gloom about Europe's debt troubles.
A day after Spain, the 17 nation currency area's fourth largest economy and one of its most embattled, announced that its budget deficit would likely be wider than initial estimates, markets were jolted by news that the regional government of Valencia was late in repaying a EUR 123 million debt to Deutsche Bank. It heightened speculation the country could be forced to seek an international bailout.
That overshadowed encouraging manufacturing data and a debt auction in Germany, where the government sold more than USD 5 billion worth of 10 year bonds. Those events dovetailed with grim news that Ireland's budget deficit widened last year, and the fact that Italy's austerity efforts have yet to pull government bond yields back below the critical level of 7%.
Mr Omer Esiner chief market analyst at Commonwealth Foreign Exchange in Washington said that "There will be potential for violent short covering rallies, but don't expect them to be sustained. I'm looking for the euro to trend lower."
With debt strapped Greece warned that it faced the prospect of a disorderly default if negotiations on its second bailout aren't completed by March 2012, analysts say the common currency's negatives are crowding out any positive news.
The ICE Dollar Index, which tracks the US dollar against a basket of currencies, was at 80.080 from about 79.651.
Market observers said that the EUR 8 billion bond auction in France will also serve as a barometer of investors' nerves about the euro zone debt crisis. With its widening debt burden, France is seen as one of the leading candidates among European nations to lose its triple A credit rating.
Mr Jens Nordvig, head of G10 foreign exchange strategy at Nomura Securities in New York, in a research note said that "The underlying Euro zone structural issues relating to debt sustainability and growth remain and this will be holding back Eurozone assets, including long term bonds and the Euro."
Stalled growth and the specter of higher borrowing costs are darkening an already cloudy outlook for Europe, and are spilling over into neighboring countries.
Investors have punished the Hungarian forint, which plummeted to an all time low against the euro amid doubts about the government's ability to insulate Hungary's economy from the fallout from the euro zone's debt woes. As a result, the forint has the dubious distinction of being one of the few currencies that have appreciated against the common currency in recent weeks.
(Sourced from www.dowjones.com)
