The U.S. dollar was mostly lower, giving back most of Tuesday's gains vs. the dollar bloc but still up vs. the euro amid concerns over the European financial crisis.
The euro suffered against a backdrop of protracted eurozone debt concerns with frenetic selling driving down to its two-month lows of $1.3284 followed by a strong bounce after rumors of an emergency European Central Bank meeting.
Sterling continued trade heavy but found support following a stable third-quarter gross domestic product report, leaving sterling around $1.578. The yen is down as well as the 10-year interest spread favors long dollars by 3 basis points. Elsewhere, the tepid recovery in risk appetite has led to a moderate recovery of the dollar bloc, with the Australian dollar testing $0.98 with the Canadian and Kiwi dollars both higher on the day.
European sovereign bonds yields continued to increase with the Irish 10-year yield up 25 basis points while at the same time Portugal's 10-year yield rose 17 basis points. The continued weakness in the periphery yields may have been exacerbated yesterday as Ireland's debt rating was lowered two steps by Standard & Poor's, citing the need for further government borrowing to fund capital injections into its troubled banking system.
S&P lowered Ireland's LT sovereign rating to A from AA- and the ST to A-1 from A-1+ and put the rating on CreditWatch with a negative outlook, reflecting the risk of a further downgrade if a EU-led rescue fails to stanch capital flight.
At the same time, 10-year Greek yields were up 14 basis points slightly ahead of Spain with a 12 basis points increase. Additionally, Germany held a very disappointing auction where it sold €4.76 billion of 10-year bunds with a coupon of 2.5% yet the bids did not cover the full amount on offer.
