Market Review - 23/11/2011 22:01 All times in GMT

Euro falls to 7-week low after Germany's poor debt auction

The single currency fell sharply to a fresh 7-week low on Wednesday after Germany auction received very poor demand and credit ratings agency Fitch's warning to France on its triple A rating renewed fears of contagion within the eurozone debt crisis.

Although the single currency briefly edged higher to a session high at 1.3530 in Asian morning, it tumbled to 1.3452 on market speculation that the bailout plan for Franco-Belgian bank Dexia is nearing a collapse after Belgian newspaper De Standaard reported of a possible renegotiation of the rescue plan for Dexia and price remained under pressure after the release of weak China PMI manufacturing data.

Later, euro tanked to 1.3374 in European morning before falling further to a 7-week low at 1.3320 in NY morning as Germany's poor debt auction and credit ratings agency Fitch's warning of France's AAA rating together with the selloff in U.S. equities stoked fears of contagion within the eurozone debt crisis.

In other news, Germany suffered one of its least successful debt auctions since 1997 and sold just 3.644 billion euros of the 6 billion euros on offer of new 10-year bunds at an average yield of 1.98%, vs. 2.09% in its last sale. A German debt agency said 'results of 10-year bund auction reflect highly nervous market environment.'

Fitch Ratings said 'intensification of eurozone crisis could put France's AAA rating at risk; risk of economic downturn, increased contingent liabilities could affect rating.'

The British pound tracked euro's intra-day movement closely and edged higher to a session high at 1.5655 in Asian morning before tumbling to a 6-week low at 1.5495 in NY after Germany's poor debt auction renewed fears of the eurozone debt crisis.

BoE voted 9-0 to keep rates and their asset purchase program unchanged at 0.5% and 275 billion pounds.

Versus the yen, although the greenback edged lower to an intra-day low at 76.93 in Asian morning, it rose strongly to a session high at 77.58 in NY morning after Germany's debt auction triggered risk aversion.

DJI closed the day down by 232 points or 2.03%.

In other news, BoE's Nov MPC minutes stated 'threat of worst eurozone risks crystallizing has increased; little merit in fine-tuning QE now due to imprecision of appropriate policy stance; market capacity makes it hard to substantially increase current rate of QE purchases.' ECB VP Vitor Constancio spoke in London and said 'joint eurozone bonds clearly seen as unrealistic, but wud be useful as reserve asset; euro area governments are responsible for stability in the region, not just central bank.'

On the data front, China HSBC manufacturing PMI was reported at 48.0 vs a previous 51.1. German manufacturing flash PMI (Nov) was worse than expected at 47.9 vs forecasts of 48.5. U.S. initial jobless claims were worse than expected at 393K vs forecasts of 390K, Durable goods orders fell 0.7% vs forecast of a 1.0% drop while University of Michigan consumer sentiment survey for Nov was 64.1, lower than forecast of 64.5.

Data to be released on Thursday:

Germany exports, imports, GDP, IFO business climate and current condition, UK GDP, distribution trade, U.S. market holiday.