With U.S. markets shut on Monday for a public holiday, the focus overnight was on Italy, whose bonds were sold off on worries that Rome is not doing enough to get its debt under control.
Indeed, highlighting investor angst over Italy's watered down austerity package, the cost of insuring Italian debt against default rose above that of Spain for the first time since Dec. 2009, according to Markit credit default swaps data.
The euro last traded at $1.4068 , having plumbed a low around $1.4060. The currency's decline was accelerated after option-related bids at $1.4100 had given way on Monday and stops were triggered through $1.4080.
This saw the dollar index climb above 75.200, its highest since Aug. 8. Dollar/yen, though, continued to chop in a tight range on either side of 76.80 yen , contained by the threat of yen-weakening intervention by Japan.
Traders said the key risk for the common currency this week is if the European Central Bank takes on a dovish stance at Thursday's policy meeting.
"Without the support of a more hawkish central bank, the euro will look very vulnerable," Societe Generale strategists Kit Juckes and Sebastien Galy wrote in a note, adding a fall below $1.3900 could easily take the common currency back to $1.3000.
The euro zone itself also faces a testing time, not least Greece's ongoing dispute with the EU and IMF on fiscal slippages which threatens to delay the next tranche of aid, worries about European bank funding and legal challenges to bailouts.
Adding to the global gloom, data on Monday showed activity in Britain's dominant services sector slowed at the fastest pace in a more than a decade last month, and firms' confidence in future business weakened to a one-year low.
Last Friday, the closely watched U.S. non-farm payrolls report showed jobs growth grounded to a halt last month adding to fears about a U.S. recession and raising hopes the Federal Reserve will add more stimulus.
Markets though appeared to be starting to come around to the idea the Fed will do this by increasing the maturity of the assets in its balance sheets, known as 'operation twist', rather than launch a fresh round of bond buying, or QE3.
Right now this is not hurting the dollar too much, butsome analysts suspect the Fed will have to go all in at some point.
"If and when QE3 does eventually happen (as our economists expect), we would expect a further rally in equities and the U.S. dollar resuming its downtrend," said the analysts at SG.
Commodity currencies struggled after coming under heavy pressure overnight as European stocks fell 4.1 percent. The Australian dollar last stood at $1.0518, down some 2-1/2 cents from last week's peak.
Immediate support is seen at $1.0507, the 76.4 percent retracement of the Aug 26 to Sept 1 rise.
The Reserve Bank of Australia meets to discuss monetary policy on Tuesday and is seen certain to keep interest rates unchanged at 4.75 percent for a 10th straight month due to heightened global uncertainty.
"Downside risks to AUD remain over the next 24 hours given the global backdrop while on the domestic front, the RBA meeting provides scope for a less hawkish statement," said Besa Deda, chief economist at St George Bank.
No comments:
Post a Comment