Euro exchange rate today: Euro in sharp fall as Spanish bonds breach 7pct, Italian economy has fallen into an 'abyss'

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Category: Exchange Rates

Published on Thursday, 28 June 2012 09:12

Written by Sam Coventry

Italy's employers lobby group Confindustria has slashed its growth forecasts for this year and next warning that Europe's third economy had fallen into an "abyss"

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Euro rate today: The euro (Currency:EUR) has fallen sharply in early trade in London, this as the Eurozone crisis is brought firmly back to attention after 24 headline-less hours.

The euro dollar exchange rate is 0.3 pct down on a daily basis at 1.2430. EUR-USD had registered a high at 1.2524 in early trade. (Latest FX forecasts published on our IMT site, free access via this Facebook entrance path).

The euro pound exchange rate is 0.21 pct lower at 0.7992, this a significant turn lower after the pair had reached a high of 0.8030 earlier.



So, a host of negative events to create a heavy euro:

Italy's employers lobby group Confindustria has slashed its growth forecasts for this year and next warning that Europe's third economy had fallen into an "abyss" - contraction is seen at 2.4 pct this year.

That said, yesterday Italian business confidence jumped unexpectedly to 88.9 in June from 86.2 in May, stopping a three-month slide.

The May number was also revised up to 86.6 from 86.2. Spanish retail sales dropped by 4.3 pct y/y in May, compared to the 11.3 pct y/y drop in April. Adjusted retail sales dropped by 4.9 pct against the consensus estimate of -8.1 pct.

Spanish 10-year government bond yields are back above 7 pct while the Italian equivalent is also up, at 6.28pct.

Italy will be holding bond auctions again today, with the €3bn 10-year auction expected to receive special scrutiny.

Interest rate expectations, at the ECB, will also continue to drive the euro in coming sessions.

"On the data front, the moderation in Germany’s CPI print for June to 1.7% y/y fanned expectations of further monetary easing by the ECB at its next policy meeting on July 5. The latest Reuters poll indicated that 48 out of 71 economists believe the ECB will cut its benchmark rate next week," says a morning FX note from Gareth Berry at UBS.

Rate cut hopes were further supported by ECB Executive Board member Praet’s comment that there is, "no doctrine that interest rates cannot fall below 1pct", though he acknowledged that a cut would only have a limited impact on the economy.