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    European Session – Widening yield spreads hits euro; dollar drops to 1-year low below 116 yen

    European equities slumped on Monday as market sentiment turned risk-off despite a calm start to the week in Asia. London’s FTSE-100 index was down by around 2% but the Frankfurt Dax was off by 2.7%.

    Concerns about the global economy were heightened today after figures out on Sunday showed the People’s Bank of China spent almost $100 billion of reserves to prop-up the yuan against the dollar in January.

    Oil prices slipped into the red soon after the European open. A meeting between OPEC producers, Venezuela and Saudi Arabia, failed to provide any signs of an immediate agreement between oil producers to limit supply. This weighed on the markets, dragging US futures down by 2.3% to $30.18 and Brent crude to $30.60 a barrel in late European session.

    Gold rallied on increased risk aversion, reaching near 4-month highs of $1190.70 per ounce.

    The dollar was having a mixed session as it tumbled against the yen but rose sharply versus the euro. Safe-haven trading increased demand for the Japanese currency, which rose against all the majors. The dollar had climbed to 117.52 yen earlier in the day but plunged to a one-year low of 115.92 yen in mid-European session before rebounding just above the 116 handle.

    However, the flight to safe havens did not benefit the euro today as a widening spread between Eurozone periphery government bonds and German bunds rattled investors, which hit the single currency. Ten-year German bund yields fell around 18% and were last down 5.6 bps to 0.245%. Meanwhile, Portuguese government bond yields jumped over 7% by 22 bps to 3.158% on growing political concerns.

    The euro nose-dived to below 1.11 dollars to 1.1086 at one point before stabilizing around 1.1120 dollars in late European session. Against the yen, the single currency fell to 129.19 yen. A weaker-than-expected February reading of the Eurozone sentix index also weighed on the single currency.

    The sentix economic index dropped to 6.0 in February from 9.6 previously. The figure was below forecasts of 7.6. The weakness was attributed to the loss of momentum in German and US growth. This increased the prospect of further monetary easing by the ECB in March.

    The pound was also weaker against the greenback. It hit a low of 1.4351 dollars and was struggling to hold above the 1.44 level in late session.

    The Canadian dollar was given only a minor lift from better-than-expected building permit figures for January. The US dollar touched a high of 1.3977 versus the loonie earlier in the day but dropped back to 1.3933 following the data.

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