The dollar has continued to add to gain strength in comparison to its European rivals on Wednesday, but has weakened versus the Japanese Yen. The situation in Spain has been the driving force behind the weakness in the Euro today. The yield on Spanish bonds has continued to rise, reaching 6.6 percent Wednesday, as the likelihood that the country may soon be in need of a bailout increases. The possibility that Greece may exit the Eurozone has also continued to weigh on investors.
The Financial Times reported late Tuesday that the European Central Bank had blatantly rejected Spain's plan to recapitalize the troubled lender Bankia using sovereign bonds. The European Central Bank said on Wednesday that contrary to media reports, it has not been consulted on the plan to recapitalize the troubled Spanish lender Bankia, but added that it was ready to give advice.
In view of the renewed tensions surrounding Spain's public finances and the banking sector, the European Commission may allow more time to the government to meet its deficit target, El Pais reported Wednesday citing an EU draft document.
The Eurozone's permanent bailout fund must be given authority to directly recapitalize the troubled banks, according to a set of proposal from the European Commission, released Wednesday.
The commission said a 'banking union' will be another step towards full economic and monetary union. Allowing direct bank recapitalization by the European Stability Mechanism will serve as a link between banks and their national governments, the executive branch of the EU said.
The greenback has been gaining ground versus the Euro for a month and has reached a 23-month high of $1.2381 on Wednesday.
Euro area economic sentiment declined more than expected in May to its lowest level in nearly three years, as the worsening economic situation damped firms' confidence, particularly those in the manufacturing, retailing and services industries. The European Commission said Wednesday that the economic confidence index declined to 90.6 in May from a revised reading of 92.9 in April. Economists were forecasting a drop to 91.9.
Eurozone money supply growth slowed unexpectedly in April, data published by the European Central Bank showed Wednesday. M3 grew at a pace of 2.5 percent from a year ago, following a 3.1 percent rise in March. Economists were expecting the annual rate to rise to 3.4 percent.
The possibility of Eurozone break-up cannot be ruled out, Bank of England's policymaker Paul Fisher said in a local newspaper interview published Wednesday. No one is trying to anticipate a euro break-up, but you just can't rule it out, he told the Leicester Mercury.
The dollar has also extended it month long rise versus the pound sterling on Wednesday, surging to over a 4-month high of $1.5491.
The U.K.'s broad money aggregate, M4, declined at a slightly slower pace in April, data from Bank of England showed Wednesday. M4, which is a measure of the quantity of U.K. money supply, dropped a seasonally adjusted 3.8 percent annually in April, after falling 4.8 percent in the previous month.
Meanwhile, the buck has dropped below a 2-session range around Y79.500 versus the Japanese Yen on Wednesday, to a 3 1/2 month low of Y78.858.
Japan's manufacturing sector expanded at a steady pace in May, a survey by Markit Economics revealed Wednesday. After adjusting for seasonal factors, the headline Markit/JMMA Purchasing Managers' Index remained unchanged at 50.7.
Pending home sales in the U.S. unexpectedly showed a notable decrease in the month of April, according to a report released by the National Association of Realtors on Wednesday, with the drop coming after three consecutive monthly gains.
NAR said its pending home sales index tumbled 5.5 percent to 95.5 in April after rising 3.8 percent to a downwardly revised 101.1 in March. The drop by the index surprised economists, who had expected pending home sales to edge up by 0.5 percent.
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