On Friday, the euro fell sharply against the dollar as the June non-farm payrolls report again underwhelmed investors.
The highly anticipated report suggested only 80,000 jobs were created, well short of expectations of 100,000, with the unemployment rate holding firm at 8.2%. This, while bad, was not seen as bad enough to coax the Fed from the sidelines, with additional quantitative easing measures. As a result, the dollar index surged above 83 and risk assets and risk currencies were sold off.
The euro itself continues to experience a post-summit reality check with a number of the announced initiatives still having to jump through a few hurdles to see the light of day. Several ECB members have suggested that the Central Bank cannot finance the ESM to buy government bonds ’in an unlimited manner‘. Also, the ESM, which had been due to take effect on July 9, now awaits the ruling of the German constitutional court on July 10. Approval is also pending from Italy's Chamber of Deputies, which is not scheduled to vote until July 30, further delaying the activation of the permanent bailout fund.
The German Finance Minister said that there has not been a troika report on Spanish bank aid yet, and that a final agreement may not be sorted until July 20. These delays are just a few of the uncertainties weighing on trader sentiment and serving as a headwind for the euro. Having ended yesterday’s Australian session around the 1.2385 level, the euro slumped to a low of 1.2251 before recovering modestly to close US trade at 1.2291. Upon resuming for Asian trade, the euro is marginally weaker in the 1.2280 range.