Forexpros – The U.S. dollar rallied against most of its major counterparts on Wednesday, after Italian borrowing costs rose to unsustainable levels, exacerbating concerns over the debt crisis in the single currency bloc.
During European early afternoon trade, the dollar was sharply higher against the euro, with EUR/USD tumbling 1.43% to hit 1.3634.
The euro was sold off as the yield on Italian 10-year bonds and two-year bonds climbed above the 7% threshold, which preceded bailouts for Greece, Ireland and Portugal, after a Paris based clearing house hiked the margin call on Italian bonds, fuelling concerns over the country’s fiscal crisis.
The move came after Italian Prime Minister Silvio Berlusconi announced late Tuesday that he would step down after parliament approves next year’s budget, but uncertainty remained over whether Italy’s new government will be able to shore up growth and implement austerity measures.
Meanwhile, Greek officials were still struggling to form a new coalition government.
The greenback was also up against the pound, with GBP/USD falling 0.76% to hit 1.5967.
Earlier in the day, official data showed that the U.K. trade deficit widened unexpectedly in September, increasing to GBP9.8 billion, the largest deficit on record, after to a deficit of GBP8.6 billion in August. Economists had expected the trade deficit to contract to GBP8.0 billion.
Elsewhere, the greenback slipped against the yen but strengthened against the Swiss franc, with USD/JPY losing 0.11% to hit 77.63, and USD/CHF surging 1.02% to hit 0.9040.
In addition, the greenback was sharply higher against its Canadian, Australian and New Zealand counterparts, with USD/CAD jumping 1.05% to hit 1.0192, AUD/USD plunging 1.53% to hit 1.0232 and NZD/USD dropping 1.42% to hit 0.7869.
In Australia, official data showed that the number of Australian new home loan approvals rose more-than-expected in September, climbing 2.2% and beating expectations for a 1.5% gain.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, surged 1.13% to hit 77.66.
Earlier Wednesday, market sentiment had been lifted after government data showed that China’s annualized rate of consumer price inflation came in broadly in line with expectations in October, slowing to 5.5%, after a 6.1% increase the previous month, indicating possible monetary easing in the near term.
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