Weakness returned to the euro and other European currencies on Tuesday as doubts crept in about the ability of the eurozone financial aid package to adequately address the sovereign debt crisis in the region.

Although the €750bn facility set up by the European Union and International Monetary Fund received a warm welcome on Monday from equity markets, bond yields remained volatile and the euro – which soared in immediate reaction to the news – finished the session with only fractional gains.

“Financing and bail-out mechanisms are essential to allow debt management initiatives to proceed and to calm creditors’ nerves about financing distress. But alone, they have never resolved a debt crisis and will not solve the current eurozone dilemmas,” George Magnus of UBS said.

He added that there were growing doubts about whether the Greek austerity programme would work but also that, historically, IMF interventions had usually required much greater sacrifices.

By late in New York, the euro was down 0.7 per cent against the dollar to $1.2693 and lost 1.3 per cent against a surging Japanese yen to Y117.76.

Sterling gained on the euro, up 1.3 per cent to £0.8498, in a late rally after Gordon Brown stepped down and advised the Queen to send for David Cameron, head of the Conservative Party, who accepted his role as the new prime minister.

UK industrial production increased 2 per cent month-on-month in March following a 0.9 per cent expansion in February, according to data from the Office for National Statistics.

The pound rallied against the dollar, up 0.5 per cent to $1.4944 after touching $1.5005 earlier in the session, and was flat against the generally stronger yen at Y138.47.

The yen gained 0.5 per cent against the dollar to Y92.78.

The renminbi rose after a Chinese official said the People’s Bank of China had signalled it was set to let the currency move more freely.

In its quarterly bulletin, the People’s Bank of China said that it would manage its currency “with reference to a basket of currencies”.

Xia Bin, an adviser to the central bank, said that the reintroduction of the reference to a basket of currencies was significant.

“The change means the currency is going to move,” he said.

In the one-month forwards market, the renminbi rose to a high of Rmb6.7880 against the dollar, pricing in an appreciation of 0.6 per cent over the next 30 days.

But analysts remained sceptical that China was set to let the renminbi rise.

“We’ll believe the revaluation when we see it,” John Hardy of Saxo Bank said.

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