Market Review - 16/11/2011 22:23 All times in GMT

Euro tumbles to a 5-week low on renewed concerns over eurozone debt crisis

The single currency tumbled to a fresh 5-week low against the dollar on Wednesday on heightened concerns about the contagion in the eurozone debt crisis but recovered from its low after the European Central Bank stepped in to purchase Italian and Spanish bonds and provided a temporary relief for the euro.

Earlier in Asia, the single currency tanked to a 5-week low at 1.3429 ahead of European open, despite a rise in Italian 10-year government bond yields back above an unsustainable 7% level, euro staged a swift rebound to an intra-day high at 1.3556 in European morning after the European Central Bank was seen buying Italian and Spanish bonds aggressively, however, price tumbled to 1.3455 on active cross selling of euro and as ECB's intervention failed to have a lasting impact on Italy's rising bond yields.

Italian 10-year government bond yields opened the day at 7.13% and fell below 7% to 6.75% after ECB's intervention but quickly rose back to 7.01%.

Later in NY, although euro rebounded to 1.3553 after U.S. industrial output rose more than expected, suggesting the economy was gaining steam, price fell gain on renewed fears about contagion in the eurozone debt crisis.

The British pound fell in tandem with euro to 1.5745 in European morning after Bank of England cut its growth and inflation forecasts, fueling speculation of additional monetary stimulus and price was further pressured by UK jobless data, which rose to a 15-year high. However, cable rebounded to a session high at 1.5816 in NY morning on cross buying of sterling, especially against the euro(eur/gbp tumbled from 0.8585 to 0.8532) before tumbling to a session low at 1.5723 ahead of NY close on risk aversion.

In other news, BoE inflation report stated 'Britain is on the brink of a contraction as the euro crisis weighs heavy and inflation will fall well below target, leaving the door open for more stimulus to boost growth; prospects for UK economy have worsened.'

BoE Governor Mervyn King said 'market sentiment has taken a turn for the worse since Aug; UK activity could be broadly flat until around middle of next year; key uncertainty about CPI outlook is impact of financial crisis on UK potential output; limits to what monetary policy can achieve.'

Versus the yen, although the greenback fell from a session high of 77.15 to 76.86 in European morning on cross buying of yen against other currencies, the pair recovered to around 77.00 ahead of NY close.

In other news, Greece's new coalition government led by Lucas Papademos secured enough votes to win a parliamentary vote of confidence.

On the data front, U.S. core CPI (Oct) rose 0.1% m/m and 2.1% y/y. Real weekly earnings rose 0.3% m/m. UK Oct jobless claims rose 5.3K vs forecast of 20.0K. The ILO unemployment rate rose to the highest level since 1996 at 8.3% in Sept. from the previous reading of 8.1% in Oct.

Data to be released on Thursday:

UK retail sales, Swiss ZEW index, US housing starts, jobless claims, Philadelphia Fed survey.