European leaders last Friday announced measures to shore up battered market confidence in the currency, trotting out stricter rules governing public finances in the euro zone and more money for a bailout fund. But confusion on just how and when the measures will be implemented and the European Central Bank’s refusal to increase bond-buying have left sentiment close to where it was before a brief burst of hope after the meeting.
In the foreign exchange market, the dollar has been the main beneficiary of the European debt crisis, gaining almost 5 percent against the basket of currencies the Intercontinental Exchange uses to compile its dollar index.
Interest in the euro has also faded among money market managers since the E.C.B. last week cut its main interest rate target, narrowing the differential that short-term euro-based assets enjoy over dollar assets.
In afternoon trading, the euro was at $1.2994 from $1.3037 late Tuesday in New York, not far above its 2011 closing low of $1.2907, set in January. Stocks in Europe were down about 1 percent.
On Wednesday, Italy — the world’s seventh-largest economy, but with the third-largest debt — sold €3 billion, or $3.9 billion, of five-year bonds, paying 6.47 percent, ticking up from 6.30 percent last month.
The German government, meanwhile, sold €4.2 billion of two-year notes priced to yield 0.25 percent, the lowest ever. The result, along with declines in stock markets, suggests investors are fleeing for the assets — like German government securities — that are perceived as safest.
Even if Europe ultimately dodges a euro disaster, it is still facing a grim economic forecast as the crisis weighs on confidence and markets overseas slow. Industrial production in the 17-nation euro zone fell by 0.1 percent in October from September, following a 2.0 percent decline a month earlier, according to Eurostat , the European Union’s statistical agency in Luxembourg. From a year earlier, production grew by 1.3 percent.
Ben May, an economist in London with Capital Economics, said in a research note that with the fear that the debt crisis will worsen, Europe’s gross domestic product would likely contract in the fourth quarter of 2011, “to mark the beginning of another deep recession,” shrinking by about 1 percent in 2012.
In that respect, a lower euro — which could help European companies to compete overseas — would be something of a boon.
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