Italian Uncertainty Weights Euro

Following an Italian sovereign bond auction which closed with escalating borrowing costs for the Italian government, the Euro held close to a 4-month trough against the greenback. Investors were already clearly wary about the possible ramifications for the Eurozone’s banking sector after the Cyprus bailout loan deal and as a result demanded a premium for the purchase of debt from Italy, which has still been unable to form a coalition government. Market players are concerned that the situation there could worsen and that a new election might have to be called as a result.

As reported at 11:46 a.m. (JST) in Tokyo, the EUR/USD pair was trading at $1.2785, relatively flat from overnight in New York, but close to yesterday’s 4-month low of 1.2750; the pair is trading nearly 7% lower from February’s $1.3711 peak. The EUR/JPY pair was recently trading at 120.70 Yen but had earlier slipped to 119.95 Yen, a new 1-month low. The Japanese Yen firmed across the board on expectations that Japan’s exporters would be repatriating funds as Japan’s fiscal year-end approaches; the gains were tempered by concerns of additional easing by the Bank of Japan.