The euro fell sharply yesterday and overnight on the back of poor debt auction results from Germany, as well as talk that the French-Belgian bailout deal for Dexia bank is not viable under its original terms. France may have to carry a bigger share of the costs, putting even further pressure on its credit rating. Meanwhile, Germany was auctioning €6 billion of a 10-year benchmark bond. However, it only managed to get away €3.6 billion of this, a cover of 0.65 times, with the average yield at 1.98%. While the very low yield may be part of the problem, there are concerns that Germany could be losing its safe haven status as core euro zone countries start to come under attack. Belgian bond yields’ spread over Germany hit new euro era highs yesterday as the country, which has been without a formal government since elections last June, struggles to agree on budget measures.

The single currency was also hurt by comments from the Bank of Greece that said the country faces a real risk of exiting the euro zone and flagged the risks of an “uncontrolled downward trajectory.” Falling to seven week lows of $1.332 versus the USD overnight, the euro also fell back against the yen and sterling. It did manage to stabilise in early morning trade but is likely to remain under pressure as the debt crisis continues to weigh. Pressured by the general lack of risk appetite, as well as a dovish set of minutes from the BoE’s last policy meeting, sterling fell versus the dollar yesterday. The euros’ fall versus the USD also dragged it lower, though it did manage to slightly outperform the single currency. Today’s Thanksgiving holiday in the US could limit activity but at the same time low transaction levels could exaggerate currency moves. Markets will be looking to the German Ifo survey results for November for some direction, as well as the second estimate of UK Q3 GDP.