Market nerves over the worsening euro zone crisis are also beginning to affect Germany, which has so far seen its borrowing costs fall to negative levels in real terms because it has been seen as a safe haven.
European shares and Wall Street ended lower on Wednesday, while the dollar fell after data showed US retail sales hit their worst level in two years in May.
The report could fuel speculation the Federal Reserve may take further stimulus measures at its policy meeting next week to support the US economy, after a weak May jobs report added to fears about the euro zone and sparked a broad market sell off earlier this month.
Weak US economic data and continued worries about the fiscal stability of the euro zone weighed on markets Wednesday, helping the prices of safe harbor Treasurys.
The euro was steady around $1.2573, caught in the middle of recent highs and lows – well above the near two year low touched on June 1 at $1.2288, but below a three week high reached on Monday at $1.2672.
On Tuesday Moody’s Investors Service cut the ratings of two banks in Cyprus, citing the increased risk of a Greek exit from the euro, and put a third Cypriot bank on review for a possible downgrade.
“It tells you much about how bearish market expectations are when a 3 notch downgrade of Spain pushes EUR/USD 15 pips lower,” said Sebastian Galy, strategist at Societe General.
“Asia will not be happy with poor US GDP growth, leading to some nervousness in these (equities) markets. The fear should peak with the Italian bond auction,” he said, noting that the disappointing retail sales could lead to lower GDP forecasts.
US crude fell 0.1 percent at $82.54 a barrel but Brent crude futures inched up 0.1 percent at $97.20.
The cost of insuring against corporate and sovereign defaults in Asia rose slightly, with the spread on the iTraxx Asia ex Japan investment grade index widening by 2 basis points.
EUROPE RICH WITH PROBLEMSGreeks were pulling their cash out of the banks and hoarding food ahead of Sunday.
The last published opinion polls showed conservatives who back the 130 billion euro ($160 billion) bailout that is keeping Greece afloat were neck and neck with leftists, who are against the rescue deal but want to keep Greece in the euro zone.
Although euro zone countries agreed to help prop up Spain’s banking sector with up to 100 billion euros ($125 billion), their action failed to calm markets.
WASHINGTON (Reuters) – US Treasury Secretary Timothy Geithner on Wednesday kept the pressure on European leaders to lay out their plans for the future of the euro zone sooner rather than later to keep the debt crisis from escalating.
Italy is struggling under tough fiscal measures instituted by Prime Minister Mario Monti, whose popularity has seen a decline since he instituted spending cuts, labor changes and higher taxes.
Italy paid 3.972% interest rates — up from 2.34% last month — to sell 6.5 billion euros in 12 month paper.
Emma Moore is a business journalist based in Melbourne, Australia. Emma has a passion for financial markets and breaking news stories and loves writing about business news, stock market, and economic opinions that matters most to its audience. Emma spends a lot of time discovering and researching latest financial markets and industry news stories in order to make sure the latest and greatest stories are brought to you first on BigBoardNews.com.