Euro slips again as bond yields red line for Italy and Spain

Lisa Smith, BA (Hons), CeFA

Currency markets are thrashing about in reaction to every new rumour as economists and politicians forecast no end is in sight for the Euro debt crisis.

Eurozone banking and borrowing problems dragged the euro and Sterling to new recent lows against the US dollar, although Sterling recovered to fight another day.

Greece has effectively become an economic no-go zone, while Spain’s cost of borrowing threatens to isolate one of the continent’s biggest economies from the money markets as bond yields surge to 6.5% and ever closer to breaking that 7% ceiling which is deemed unsustainable for the economy in the long term.

Investors are fleeing the euro as the will-they-won’t-they do something game continues with the richer eurozone nations refusing to commit to bolstering the poorer nations.

The European Central Bank says the funds are available to shore up ailing Spain, but the Spanish are gamely trying to soldier on without taking billions of euros as a hand-out in the same way as Ireland and Greece.

The end game for Spain is likely to be accepting the cash from the ECB to recapitalise banks. The question is not if but when.

Sterling lost 0.5% on the day (May 31) to $1.5565, to hit the lowest level since January. Sterling is expected to fare better then the euro has investors seek a safe haven for cash draining out of Spain and Greece.

The euro continues to slip against the US dollar and Sterling – down 0.27% against the dollar to a two-year low of 0.8 and 0.17% to 1.2496 against the Pound.

Meanwhile, Italy suffered a set back as a bond sale resulted in higher interest costs for the government.

The yield on 10-year debt topped 6% for the first time since January.

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