The U.S. dollar continued the upside move for the third consecutive day as more investors are holding the low yielding currency in order to avert as much risk as possible, ahead of the Bank of England rate decision and as borrowing costs in Europe return to incline, with fears unsustainable yields on Spanish and Italian bonds might pressure the nations toward the debt-trap.
Borrowing costs on Italian and Spanish bonds continued to force more pressures on both nation, as yields on 10-year Spanish bonds reached the highest since December, adding so far 24 basis points to currently hover around 5.71%. Yields on the Italian 10-year benchmark climbed 11 basis points to 5.4%, adding concerns Spain and Italy are not well-protected and might follow other weak indebted nations, unless lawmakers provide more steps to shield larger countries from the debt crisis.
The euro extended the decline today after France ran another downbeat auction, where the French government sold approximately 8.44 billion euro of bonds with different maturities. The French bonds saw less demand this time and higher borrowing costs, the thing that spread fears that instability in the debt market might return and therefore the debt crisis may worsen further.
More pressures were forced on the European common currency after the German data showed the industrial production dropped also in Germany, the thing that reflected fragile economic conditions in the euro zone, especially after unemployment surged to 10.8%, while the flow of downbeat macroeconomic fundamentals continue to indicate that the region will slip back into recession very soon.
The EUR/USD pair opened the session today at $1.3141 and recorded so far the highest at $1.3164 and the lowest at $1.3056, and is currently hovering around the mentioned low at $1.3060.
Pessimism hit the royal currency as well after the downbeat manufacturing and industrial production data from the United Kingdom, where the royal economy might also slip into recession affected sharply by the slowdown in the neighboring region, the kingdom's largest trade partner.
The GBP/USD pair is hovering now around $1.5829, down from the opening level of $1.5885, where the pair declined sharply as pessimism dominated the market and dampened demand for high yielding currencies, awaiting the Bank of England rate decision with expectations the Monetary Policy Committee will leave rates unchanged at 0.5% and stimulus steady at 325 billion pounds.
On the other hand, the U.S. dollar returns to recover the losses incurred after Bernanke clarified that more stimulus is needed, where the Feds explained in the Minutes that further easing will not be available on as an option unless that the U.S. economy returns to shrink.
The U.S. dollar index (USDIX) started the session at 79.73 and recorded so far the highest at $80.06 and the lowest at $79.63, and is currently trading around 80.02.