The euro slumped yesterday to the lowest dollar level in more than a year after Italy scraped through a bond auction, but stock markets took it in stride and advanced on reassuring US jobs data.
Just after midday, the European single currency tumbled to $1.2858 – the lowest level since September 14, 2010 – before rising to $1.2934.
The unit also sank against the safe-haven Japanese yen, striking 100.06 yen – last seen in June 2001 – before rising back to 100.18 yen.
Italy scraped through a key bond auction test yesterday at the end of a disastrous year for the eurozone, raising €7 billion.
That was below the maximum sought of €8.5 billion but long-term rates holding below the danger threshold of seven per cent which has set off alarm bells around the world.
The rate on bonds due in 2021 was at 6.7 per cent – higher than the level of 5.77 per cent for the last similar operation on October 13. The rate on bonds due in 2022, however, was 6.98 per cent compared to 7.56 per cent in November.
“The bond auction went okay, given what is going on in the eurozone, but almost 7.0 per cent for 10-year paper is very high and I can see the yield creeping up very quickly if issues persist,” ETX Capital trader Manoj Ladwa told AFP.
“Italy has a lot more leeway than Greece in that it can stay above 7.0 per cent for a longer period than the smaller EU members.
“But we cannot rule out a bail out for Italy if the market loses patience with EU ministers’ lack of action over the debt crisis.”
The ability of Italy to borrow on the market was being closely watched as a test of confidence in the eurozone, which has been blighted this year by the sovereign debt crisis.
Italy had on Wednesday raised €9.0 billion in six-month bonds at a rate of 3.251 per cent – half the rate of 6.504 per cent that it was forced to pay in November.
Thin trading conditions are meanwhile sparking volatile market moves ahead of the New Year break.
“In the context of the yesterday’s auction, today’s results were disappointing as the demand was less than expected and did not reach the maximum target,” added analyst Anita Paluch at Gekko Global Markets.
“This is definitely not helping the euro – but we have to consider that many traders are away.”
Stock markets responded cautiously to the bond auction in low trading volumes and took reassurance from weekly jobs numbers in the US.
In afternoon deals, London’s FTSE 100 index of leading shares rose 0.48 percent to 5,537.41 points, the Paris CAC 40 added 0.75 per cent to 3,094.45 points and Frankfurt’s DAX 30 won 0.30 per cent to 5,799.14 points.
Milan’s FTSE Mib benchmark index edged up 0.12 per cent to stand at 14,814.88 points.
US stocks gained in opening trade Thursday helped by a weekly jobless claims number that confirmed the improving trend in the labour market.
After the first half hour of trade the Dow Jones Industrial Average was up 0.61 per cent at 12,225.58 points. The broader S&P 500 0.58 per cent to 1,256.85 points, while the Nasdaq Composite gained 0.19 per cent to 2,594.93.
Initial US jobless claims climbed to 381,000 in the week ending December 24, up from 366,000 the previous week, but the four-week moving average fell to 375,000, a level last seen in June 2008.
In Asia on Thursday, Hong Kong dropped 0.65 per cent, Sydney stocks fell 0.43 per cent and Tokyo shed 0.29 per cent.