The euro fell sharply on Monday as bond yields on the debt of eurozone periphery countries began to push higher after doubts were cast on the willingness of some of Europe’s top financial officials to issue a single eurozone bond.

Meanwhile, financial markets were back in safety mode after weaker-than-expected US jobs data on Friday prompted investors back into the havens of dollar and yen assets.
The euro had rallied strongly in the latter half of last week, having fallen 7 per cent against the dollar over the course of November. The rally was driven by hopes that bond purchases by the European Central Bank, added to efforts to raise funds for future bail-outs by the issue of a eurozone bond, could halt the spread of the debt crisis across the region.
However, as Europe’s finance ministers met in Brussels, reports began to emerge that not all of them were satisfied that a single eurobond was a viable part of the solution. Germany has resisted the move, saying the issue of a eurobond would raise its borrowing costs while removing incentives for those countries with large deficits to maintain fiscal discipline.
“Irrespective of the merits of this idea, the difference in opinion only highlights the policy uncertainty that has weighed on the euro over the past year,” said Raghav Subbarao at Barclays Capital.
He added: “While any uncertainty and lack of co-ordination will weigh on the euro, we expect relief rallies on the back of positive news to be short-lived as markets continue to worry about the fiscal situation in Portugal and Spain.”
By late Monday morning in London, the euro was down 0.9 per cent to $1.3261 against the dollar and had fallen 0.7 per cent to Y108.77 versus the yen. Against the pound it was down 0.3 per cent to £0.8458.
The dollar found support across the board ahead of a number of risk factors this week, including the Irish budget, which goes to the ballot on Tuesday. The US currency was up 0.6 per cent against the pound to $1.5672 ahead of Thursday’s Bank of England meeting, at which the monetary policy committee is expected to hold fire on rates and keep its asset purchase program unchanged. The pound was down 0.4 per cent to Y129.81 against the yen.
The dollar was up 0.3 per cent to Y82.83 versus the yen.
(Source: The Financial Times