The euro continues its downslide compared to other major currency as investors fear for the future of the eurozone.
The European single currency fell below $1.30 on Wednesday, marking its first fall to this low since 12 January 2011.
Against the pound, one year purchased only 84 pence, while the pound was worth around 1.19 euros.
There is hope for a euro resurgence on the back of last week’s crucial summit in Brussels, which brought European Union leaders together in an attempt to solve the spiralling debt crisis.
At the summit, 26 of the 27 EU member states agreed to a pact that would enforce new fiscal rules with greater attention to each member state’s budget and spending habits.
Only the UK abstained, leaving the rest to create a treaty between governments, as an EU treaty requires the consensus of all member states.
However strong these new rules may be, many fear that the budget pact will not be enough to prevent more countries from seeking a bailout.
A clause in the new treaty says that countries will face sanctions for breaking faith with the pact, but experts and analysts wonder what these sanctions will really accomplish in practice.
As a result of a shaky showing in Brussels that did not lift the confidence of the markets, the euro and European markets have been on a sharp decline.
Wednesday’s afternoon trading saw London’s FTSE down by about 1.8%, while the German Dax was 1.25% lower. The Cac-40 in Paris closed down 2.35%.
Others are concerned about the ability of the eurozone to keep itself together, especially in the face of borrowing costs that are continuing to diverge.
Italy’s government paid an interest rate of 6.47% to borrow 3 billion euros for five years, which is up from 6.3% last month.
The yield on Italian bonds rose even further after the bond auction, rising to 6.77%. This skyrocketing figure indicates the market finds Italy unstable and unsafe for lending.
Meanwhile, Germany saw its borrowing costs fall further. German markets are considered the safest place within the eurozone to invest, as Germany remains Europe’s largest powerhouse economy.
When trying to auction 5 billion euros’ worth of two-year bonds, German enjoyed yields that fel from 0.39% to 0.29%.