Forexpros – The euro remained sharply lower against the U.S. dollar on Wednesday, trading close to a 16-month trough as worries over the ongoing sovereign debt crisis in the euro zone and concerns over the health of the region’s banking sector weighed.
EUR/USD hit 1.2920 during U.S. morning trade, the pair’s lowest since Monday; the pair subsequently consolidated at 1.2930, tumbling 0.91%.
The pair was likely to find support at 1.2857, the low of December 29 and a 16-month low and resistance at 1.2998, the high of December 30.
Sentiment on the single currency was hit after a closely watched auction of German government bonds met with lackluster investor demand and failed to ease investor concerns over borrowing conditions in the euro zone.
Germany sold EUR4.06 billion of 10-year bonds at an average yield of 1.93%, compared with 1.98% at November’s launch of the January 2022 bond, which was the worst German bond auction on record.
The auction came after data showed that service sector activity in the euro zone contracted for the fourth consecutive month in December, albeit at a slower pace than initially estimated, underlining fears that the financial crisis is creating a drag on growth in the region.
Meanwhile, concerns over the health of the European banking sector remained in focus after a report showing that bank deposits at the European Central Bank’s overnight facility reached a new all-time high of EUR453 billion on Tuesday, underlining the unwillingness of European banks to lend to each other.
Elsewhere, official data showed that the rate of consumer price inflation in the euro zone eased to 2.8% from 3% in December, supporting the view that the ECB could cut rates further to bolster growth.
The euro was also sharply lower against the pound and the yen, with EUR/GBP dropping 0.70% to trade at a 16-month low of 0.8280 and EUR/JPY falling 0.89% to hit a 10-year trough of 99.23.
Also Wednesday, official data showed that U.S. factory orders rose for the first time in three months in November, climbing 1.8%, just shy of expectations for a 1.9% gain.
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