The dollar has gained ground against its major competitors on Monday. Spain announced a ban on short sales of stocks for three months, while Italy banned short sales of stocks in the financial sector for one week. The situation in Greece has once again raised concerns that the country may exit the Eurozone.
The Spanish economy sunk deeper into recession in the second quarter, the Bank of Spain said, while bailout concerns pushed the country's borrowing costs to euro-era highs. In its quarterly estimates released on Monday, the Bank of Spain said the economy would have contracted 0.4 percent sequentially in the second quarter. This was sharper than the 0.3 percent contraction reported in the first quarter of 2012 as well as in the final three months of 2011.
Spain's Valencia and Murcia regions have asked for financial aid, leading to speculation that a sovereign bailout may be necessary. The yield on 10-year Spanish government bonds climbed to 7.46 percent, touching a new euro-era record.
The International Monetary Fund has signaled that it may not participate in further economic assistance for Greece, heightening the risk that the country may run out of cash by September, Germany's Der Spiegel reported Sunday citing unidentified EU officials.
The newspaper said that it is already clear to the troika, comprising the European Union, IMF and the European Central Bank, that the country will not reach the 120 percent deficit target. The troika will return to Athens for inspection on Tuesday.
In an interview to broadcaster ARD on Sunday, German Vice Chancellor Philipp Roesler said if Greece does not meet the obligations, then there can be no more payments. A Greek exit from the Eurozone has long ago lost its horror, he added.
The euro is not in danger and "is irrevocable," European Central Bank President Mario Draghi said in an interview to French newspaper Le Monde over the weekend.
Some analysts are imagining scenarios in which there is an explosion of the euro area. "That underestimates the political capital that our leaders have invested in this union, as well as the support of European citizens," he said.
The greenback climbed to a new 2-year high of $1.2066 versus the Euro on Monday, but has since eased back to around $1.2125.
The British manufacturing sector is likely to contract this year as the economic turbulence in the Eurozone continues affect trade and exports, a report published by manufacturers' organization Engineering Employers' Federation (EEF) showed Monday. EEF expects manufacturing output to decline 0.3 percent in 2012, faster than the 0.1 percent fall forecast earlier. It will mark the first contraction in three years.
The dollar extended Friday's gains versus the pound sterling on Monday and reached $1.5484, its highest level since July 13th.
Household finances in the United Kingdom deteriorated at the slowest pace in four months in July, data from a survey by Markit Economics showed Monday. The household finance index, which is designed to anticipate changing consumer behavior, came in at 37.5 in July, and continued to remain below the no-change 50 mark that separates growth from contraction. The latest reading was slightly higher than 37 recorded in June, indicating moderation in the rate of decline.
The Japanese government on Monday vowed to work "decisively" with the Bank of Japan to prevent the adverse impacts of yen appreciation and deflation on the economy. "The government will also make an utmost effort to prevent the economy from falling into vicious cycle between yen appreciation and deflation," the government said in a monthly report published by the Cabinet Office.
The buck has bounced back from over a month and a half low of Y77.932 versus the Japanese Yen Monday morning, back to around Y78.430.
by RTT Staff Writer
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