The dollar has added to its recent strength against the Euro on Tuesday as economic concerns continue to weigh on the Eurozone. Investors continued to be concerned by the situation in Spain, as well as the possibility of a Greek exit from the Eurozone. Spain paid a hefty premium to sell its short-term debt on Tuesday as investors remained worried that the country is on the brink of seeking a full-blown bailout. Italy also saw its benchmark yield climb.
Moody’s Investors Service has warned Germany, the Netherlands and Luxembourg that they may lose their coveted triple-A credit ratings due to intensified uncertainty regarding the outcome of the debt crisis.
The agency cut the outlook on the sovereigns’ Aaa rating to ‘negative’ from ‘stable’ and said the revision is driven by its view that the level of uncertainty about the outlook for the euro area and the potential impact of plausible scenarios on member states are no longer consistent with ‘stable’ outlooks.
Moody’s said the risk of a Greek exit from the euro area has increased relative to its expectations earlier this year. A Greek exit from the monetary union would pose a material threat to the euro, it warned.
Moody’s said these sovereigns are impacted by the “rising uncertainty regarding the outcome of the euro area debt crisis and the increased susceptibility to event risk stemming from the likelihood of Greek exit, including the broader impact that such an event would have on euro area members, particularly Spain and Italy.”
The greenback has been rising in comparison to the Euro for the past 3 sessions and reached a 25 month high of $1.2041 on Tuesday.
Consumer confidence in Eurozone deteriorated in July amid further escalation of the debt crisis, the latest figures from the European Commission showed Monday. The flash estimate of the consumer confidence indicator decreased sharply to -21.6 in July from -19.8 in June in euro area.
The Eurozone private sector economy contracted for the tenth time in the last eleven months, with the rate of decline unchanged on June, Markit Economics said Tuesday. The flash composite Purchasing Managers’ Index remained unchanged at 46.4 and matched the consensus forecast. A reading below 50 suggests contraction in the sector.
While the manufacturing PMI fell to 44.1 from 45.1 in June, the services PMI rose to 47.6 from 47.1. Economists were forecasting the manufacturing index to rise to 45.2 and the services PMI to remain stable at 47.1.
French business confidence declined in July, the latest data from the statistical office Insee showed Tuesday. The headline synthetic index for the manufacturing sector fell to 90 in July from a revised reading of 91 in June. Economists expected the reading to remain at June’s original score of 92.
Germany’s private sector continued to shrink in July, marking the weakest performance since June 2009, Markit Economics said Tuesday. The flash composite output index fell for the sixth month running in July, to 47.3 from 48.1 in June. The index has posted reading below 50 in each month since May.
The flash manufacturing Purchasing Managers’ Index dropped unexpectedly to 43.3 from 45 a month ago. The reading was below the consensus 45.1. Likewise, the services PMI fell to 49.7 from 49.9 in June. The reading was forecast to rise to 50.
Germany’s leading economic indicator decreased for the second consecutive month in May, hurt mainly by negative contributions from stock prices and new residential construction orders, data released by the Conference Board showed Tuesday. The leading economic index dropped 0.1 percent to 104.3 in May, after decreasing 0.5 percent in the previous month.
The dollar is little changed versus the pound sterling on Tuesday, holding steady around the 1.55 level, near yesterday’s high.
The number of mortgages approved for house purchases in the U.K. declined unexpectedly in June, the latest figures from the British Bankers’ Association showed Tuesday. The number of approvals fell to 26,269 in June from a revised 29,567 in May. Economists were expecting the number of approvals to rise to 31,200 from May’s originally reported 30,238.
The buck has pulled back from Monday’s high of Y78.452 versus the Japanese Yen on Tuesday, to around Y78.165.
The prospect of meeting the Bank of Japan’s inflation target of 1 percent in next fiscal year is highly uncertain, Takahide Kiuchi, one of the two new members appointed to the central bank’s policy board, reportedly said Tuesday. Kiuchi said more policy easing is needed to beat deflation. Takehiro Sato, another board member, said it is ideal to raise inflation expectations.