Spanish Bonds Breach 7 Percent Again

During trading on Friday, the euro lowered slightly against the United States dollar. Meanwhile, the Australian dollar held at record highs against the Eurozone’s currency amid concerns over bailout possibilities in Spain. With all of the speculation surrounding a Spanish bailout, Spanish ten-year bonds were pushed back above 7 percent on Thursday. This marks the first time in over a week that Spanish bonds breached the 7 percent barrier.

In other Eurozone nations, the 7 percent mark for ten-year bonds was the point of no return fiscally. Once nations like Ireland reached this unsustainable level, they were forced to arrange a bailout for their governments. Currently, the marketplace is filled with doubts over Spain’s ability to cut spending enough to avoid a full scale bailout.

In early morning trading, the euro dropped 0.2 percent to reach a level of $1.2253. This dismal exchange rate was slightly better than the previous week’s low of $1.2162. Last week’s weakest exchange rate marks the lowest level in the last two years for the euro versus the greenback.  One issue contributing to the low exchange rate was the recent decision by the European Central Bank. The ECB decided last week to drop the main interest rate to 0.75 percent and the deposit rate to zero percent. After this decision was made, investors fled from the euro to better interest rates in other nations. Individuals who choose to park their money in the euro are currently losing money on their investments.

In Germany and the Netherlands, two-year bond rates are presently trading in negative territory. Out of every Eurozone nation, these two countries had previously been seen as stalwart economies that could weather the tumultuous financial market. With the fall in bond rates, investors have become increasingly skittish around anything related to Europe.

Yen Remains Strong

The Eurozone’s currency dropped 0.2 percent against the yen. It is currently trading at 96.30. This level is dangerously close to the record low of 95.59 yen that was set in November of 2000. If the euro continues to drop, it will reach its lowest level for almost 12 years.

Australian Dollar Remains Strong

During the month of May, the euro reached a peak of A$1.3028. Since that day, the Eurozone’s currency has fallen almost ten percent against the Australian dollar. Some market analysts see the euro falling even further. While Europe was hit heavily by the floundering global economy, Australia’s economy remains strong.

 Last week, Chinese data was released that showed the world that China’s economy was still running smoothly. As Australia’s leading export market, the economy of China greatly effects how well the Australian export market performs. With good news coming from China, the economy and financial situation in Australia is looking up. Positive investor sentiment boosted the Australian dollar to its currently high levels against the euro. If the situation in Australia improves, the Aussie could rise even higher in the next few months. 

Greenspan Paints Dismal Outlook

The safe haven of the United States dollar is looking like less of a safe haven each day. On Tuesday and Wednesday, Federal Reserve Chairman Ben Bernanke gave his testimony before congress. He painted a negative outlook for the future year and hinted at the possibility of quantitative easing.  Bernanke also discussed the potential that lack of action by congress could contribute to jobs losses. If jobs are lost by the economy, it could start a downward spiral of cut interest rates and a European-style meltdown.

The greenback has taken a further hit as real estate data hit the newsstands. The National Association of Realtors reported that the number of existing home sales dropped by 4.37 million for the month of June. This makes a drop of 5.4 percent.

The unemployment report for last week shows an increase of 34,000 claims for last week. This number was released by the United States Department of labor and shows that a total of 386,000 people are currently filing for unemployment. Economists had previously expected the number to be at a much lower level of 365,000.

Against the United Kingdom’s pound, the United States dollar fell 0.36 percent to 1.5708. Meanwhile, the greenback gained 0.1 percent against the yen to reach a level of 78.60. It is still hovering close to the six week low it hit on Thursday of 78.42.