The single currency dropped to its lowest level since July 2010 against the dollar as German resistance to the issuance of so-called eurozone bonds hit confidence that Wednesday’s EU summit could come to a deal to promote growth in the region and prevent Greece from leaving the euro.
The divide in Europe was put into stark relief as the yields on government bonds from Germany, the UK, Sweden and the Netherlands all hit record lows, while those on paper from more fiscally challenged southern states climbed.
In Germany, 10-year yields now stand at just 1.39%, while in the UK it is 1.76%.
On Tuesday, Germany issued a zero coupon 5-year bund.
Michael Derks, chief strategist at FxPro, said the UK might soon be able to follow Germany’s lead if funds continued to flow into London.
“There is no reason to think that this leakage of capital and wealth from Europe’s south to the north will not continue. Indeed, there are signs that it is quietly accelerating,” he says.