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The euro has now reached a milestone against the yen and the United States dollar. This low is the worst for eleven years against the yen and 23 months for the dollar. Throughout Thursday’s session, the market fluctuated greatly. By the end of a stretch of a turbulent few hours, the euro came out a little worse for wear. Rumours that the International Monetary Fund is creating a backup plan for Spain have only increased the depreciation of the euro.
Tomorrow the United States is set to release employment data for the month of May. Other data released over the last month and consumer confidence reports have revealed a less than optimal recovery. As the market teetered over United States economic data, the employment report has been met with low expectations.
IMF Bailing out Spain?
Bankia, the fourth largest bank in Spain, requested help from the Spanish government to manage their monetary issues. An initial report that the International Monetary Fund was creating a contingency plan caused the value of the euro to rise. Once the rumor was disproved, it dropped again. Christine Lagarde, the managing director of the IMF, issued a statement that the IMF had no plan to bailout Spanish banks or provide any sort of financial support.
As a result of the banking issues and provincial funding problems, Spanish ten-year bonds are still close to record highs. Investors are worried that Spain may be forced to ask for a bailout if their financial problems continue. Olli Rehn from the European Commission expressed fears that the European Union could dissolve financially if they do not figure out a way to fight fiscal crises.
Good news from Europe came after a vote in Ireland. Ireland decided to vote in favour of new fiscal policies for the European Union. The tally is not in yet, but exit polls show that Ireland is likely to vote in favour of the proposal. For a while today, the euro traded at a rate of $1.2335. Toward the end of trading, the euro settled in at a 0.11 percent drop to $1.2357.
Compared to the yen, the euro is trading at 96.48. This marks the worst level for the euro since December of 2000. The United States dollar also fell to 78.27. This marks a three and a half month low for the dollar. The yen has been performing better lately due to its status as a safe haven. Investors are looking for a currency to invest in that is safe from the troubles suffered in Europe. Overall, the euro dropped a total of 6.7 percent in May against the dollar. This is the largest drop since September of last year. The euro suffered worse against the euro falling 8.3 percent for the month. Comparably, the dollar is doing quite well. It is outperforming the euro and only fell 1.8 percent against the yen for the month of May.
A Game Changer: United States Job Reports
United States data on manufacturing and labour growth in the first quarter show that job reports will be less than hoped for. Investors have hoped that the economy would be improving faster. Instead, it seems like the economy is set to make modest gains or hold steady. Economists currently believe that tomorrow’s labour report will show a growth of around 150,000 jobs. If the added jobs are less than 100,000, it will spell bad news for the United States economy. Any number below 100,000 is considered an indication that job growth and the economy are stagnating. The data issued by the United States so far as well as bailout problems in Europe have made United States bonds drop to 1.5326. These record lows arrive as the dollar benefits from safe haven inflows. The dollar is currently at its strongest level for 21 months. Compared to a basket of currencies from around the world, the dollar is outperforming its peers as the rest of the world sinks into debt crises.
Chinese Currency Falls
In the month of May, the Chinese renminbi fell more than any other month since 2005. This move came as the Chinese government worked to strengthen China’s export market. Reports from the start of 2012 show that the Chinese export market is faltering amid the economic turmoil experienced in much of the world. In response, the government is trying to promote the export market while delicately balancing their relationship with other countries. In the past few years, Chinese attempts to manipulate their currency have come under fire from the United States and Europe. Moves by the Chinese to depreciate their currency have been met with sharp criticisms from governments around the world. As the world’s most populated nation attempts to remedy their economy, they will have to carefully navigate any depreciation made to the renminbi.