The euro continued trading lower against the US dollar this morning after briefly hitting a session high upon the release of appalling US August employment data.
US employment figures showed that the jobs market had ground to a halt in August, with no new jobs added, which increased bets that the Fed will take additional action to support the economy. However, concerns over the eurozone debt crisis and its economic outlook, after abysmal manufacturing data was released yesterday, appeared to overshadow the US figures and dominated EUR/USD trading this afternoon.
Weighing on the euro today are the deteriorating Greek and Italian situations and the possibility of the ECB softening its hawkish stance at next week's policy meeting. ECB president Jean-Claude Trichet reiterated today that Italy must make structural reforms and maintain the commitment it made last month to cut its deficit and increase the flexibility of its economy. Finland's demands for collateral in exchange for financial aid have raised worries that the second Greek bailout could be derailed.
In addition, renewed worries that Greece could miss its deficit targets have led to a suspension in talks between Greece and the Troika (of the ECB, IMF and the Eurogroup). Talks are expected to resume in ten days after the Greek government has prepared a draft outline of its 2012 budget, but the dispute over fiscal slippage is complicating negotiations before the release of the next aid tranche as part of the latest €110 billion bailout.