The euro weakened across the board on Monday as investors were worried over the funding tensions in Europe as a lending facility provided by ECB would expire this week.
The single currency remained under immense selling pressure on Monday as banks must repay 442 billion euros to the ECB on this coming Thursday and investors were worried this would create a potential liquidity shortfall in the European financial system. In addition, traders bought the Swiss franc aggressively after SNB's Danthine said that deflationary risks had disappeared and Swiss exports had proven to be robust despite a stronger currency. Italy's auction of government bonds was met with tepid demand on Monday and this also added further pressure on euro.
Although the single currency edged higher to 1.2398 in Asian morning following Friday's rally to 1.2396 in New York trading, euro retreated sharply from there and remained under pressure in Europe and then U.S. session. Intra-day decline picked up more downward momentum after Richmond Fed President Jeffry Lacker said that a solid U.S. economic recovery might soon enable the U.S. Federal Reserve to drop its promise to keep interest rate low for an 'extended period'. The single currency eventually weakened to 1.2265 in NY afternoon. Cross-selling in euro also pressured price as eur/chf tumbled to a fresh lifetime low of 1.3329 and eur/gbp tumbled to 0.8122, the lowest level since November 2008.
Versus the Japanese yen, the greenback initially edged higher to 89.47 in European morning but retreated from there and fell to 89.06 in NY morning ion cross buying of yen vs euro. However, the pair rebounded after Lacker's comments and ended the day at 89.36.
The British pound extended Friday's rise and traded with a firm undertone throughout the day. Cable staged a pullback to 1.5018 in European morning but eventually rose to 1.5130 in NY afternoon on Monday. Cable was supported as Barclays said on Friday that the British pound may be attractive due to government's tough stance in improving the nation's finances. BOE's Sentance also said on Monday that Britain's tough budget would not remove the need to start raising interest rate ' now '.
In other news, at the end the G20 summit meeting over the weekend, leaders agreed to cut budget deficits amid the uneven and fragile economic recovery in many countries. The leaders agreed to pursue higher capital requirements for banks once economic recoveries could take hold. US President Obama welcomed the deficit-cutting goal set by the G20 nations.However, market showed little reaction to these comments.
Economic data to be released on Tuesday include :Japan Household spending , Unemployment rate , Industrial prod'n , EU Business climate, Economic sentiment , Consumer Confidence , Canada PPI , U.S. Consumer confidence.