It seems as though the worst isn’t over for the European Union.  Although speculation has increased that both European leaders and global creditors are working towards a credible agreement on Greek debt matters, there is concern that a future and similar scenario is in the works for Portugal.  The sentiment is keeping the euro below 1.3150, falling in New York trading to 1.3111.

The Portuguese economy continues to suffer from a major pullback on aggressive austerity measures enacted late last year.  As a result, market sentiment is siding with the fact that the country may not be able to meet its deficit targets – which currently stand around a soft benchmark of 3% in the next couple of years.  This has pushed benchmark 10-year bonds of the country higher in the day – rising to over 15%.  With short term yields now higher against lower longer term yields, the inversion of the bond curve draws similarities with other European countries at the height of their respective downturns.  In the event that many more investors exit their investments in Portugal, the yield is expected to push even higher.  The scenario is likely to force the current administration to seek a second bailout from European leaders as the current cost of the country’s debt will likely be too heavy a burden to bear in the short term.

Spanish woes are additionally supportive of euro declines after the National Statistics Institute reported that Spanish unemployment reached the highest levels in about 15 years.  The 22.9% unemployment rate in Spain is more than double the region’s average rate of unemployment – and is likely to further contribute to a forecasted 1.5% contraction in the economy.  The report places additional pressure on newly elected Prime Minister Mariano Rajoy in creating employment in the down economy – a major election pledge.