July 9, 2012

Euro falls to two-year low against dollar (again)

The euro fell to another two-year low against the dollar Monday, as investors continue to seek safety in the greenback while they wait for the latest news from the eurozone.

The euro was trading at $1.22 against the U.S. dollar Monday. The last time it was that low was June 2010. The European currency slid 1.2% against the Japanese yen.

Fears intensified as finance ministers from eurozone countries set off on a two-day meeting in Brussels to determine how money from the European Stability Mechanism can be used to bail out troubled banks in the euro area.

Low expectations for the meeting have sent the the yield on the 10-year Spanish bond above 7% again -- a level that Spain's prime minister has previously called unsustainable. Italian bond yields for 10-year notes were above 6.1%.

While the Eurogroup meeting should have rekindled hopes that a solution is coming, the lack of investor confidence has increased pressure on eurozone debt markets.

"Eurogroup meetings today on the EU summit and how to make progress from here have done little to soothe markets as the euro sinks lower and Italian and Spanish yields jump higher," Camilla Sutton, chief currency strategist at Scotiabank, said in a research note.

Sutton said that investors' concern over "falling global growth" has also pushed yields on sovereign higher and the euro lower.

Last week, the European Central Bank cut its main lending rate by a quarter of a percentage point to a record low of 0.75% on the heels of declines in manufacturing activity and a slowdown in the second quarter.

"We see now weakening of growth in the whole of the euro area including countries that had not experienced that before," said ECB President Mario Draghi lastThursday, following the rate cut.

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