The euro rallied to a high of $1.344 following Italy’s bond auction, which continued to attract, demand albeit at higher yields.
The Italian government this morning managed to raise a total of €7.5 billion, selling €3.5 billion of three-year bonds at a yield of 7.89%, up from 4.93% in a sale of three-year paper in October. It also sold €1.499 billion September 2020 bonds with a gross yield set at 7.28% and €2.5 billion March 2022 bonds with a yield of 7.56%. Demand for the 2014 bond was 1.5 times the amount sold, while the bid-to-cover ratio for the 2022 bond was 1.34 times. That compared with 1.35 times and 1.27 times respectively at an auction on 28 October. The euro’s gains were, nevertheless, limited by a report from Standard & Poor’s, which warned it could cut France’s triple-A rating outlook to negative within days.
Meanwhile, it has been reported that France and Germany are working on proposals for more rapid fiscal integration in Europe, while Germany's finance minister Wolfgang Schaeuble stated that tighter control of fiscal policies by Brussels could shore up market confidence in Europe. However, he continued to oppose eurobonds or the ECB stepping in to be the lender of last resort. The general consensus today in the market is that euro-area policymakers are nearing agreements to counter the region’s sovereign debt crisis. Investors will be keeping a close eye on the ECOFIN meetings this afternoon and tomorrow. From a technical analysis perspective, the trend for EUR/USD continues to remain bearish, although the steady support since 25 November suggests there is some hope for a reversal. By 1.15pm (London time) EUR/USD was only 0.14% higher at $1.3329.