FOREX-Euro falls across the board as Spain fears intensify
* Falls after Valencia says seeking debt help * Euro hits record low vs Aussie, Canadian, Kiwi dollar * Commodity currency strength expected to continue By Gertrude Chavez-Dreyfuss NEW YORK, July 20 (Reuters) - The euro tumbled broadly on Friday after Spain's Valencia region said it will seek central government help to repay its debts, raising concerns the euro zone's fourth largest economy may have to ask for a full-scale international bailout. As a result, the single euro zone currency plunged to record lows against the Australian, Canadian, and New Zealand dollar. It also hit multi-month lows against the yen, the Norwegian and Swedish crowns. The news intensified concerns that Spain, the euro zone's fourth largest economy, may not be able to avoid a full-blown international bailout, with 10-year yields trading above the 7 percent level that is seen as unsustainable. "The market got a little bit of a curveball thrown at it with the Valencia news," said Matthew Lifson, senior currency trader and market analyst at Cambridge Mercantile Group in Princeton, New Jersey. "We were drifting and everything was looking okay and this news comes out and it just gives people more reason to sell the euro." A statement saying euro zone finance ministers formally approved Spain's bank bailout failed to offset the gloom. The euro fell as low as $1.2184, just above a two-year low of $1.2162 hit last week. It was last at $1.2189, down 0.7 percent, declining for a third straight session and posting losses of about 0.5 percent this week. The single currency hit record lows against the higher-yielding Australian dollar at A$1.1716, the Canadian dollar at C$1.2300, and New Zealand dollar at NZ$1.5191. The euro zone's common currency hit a seven-week low against the Japanese yen of 95.67 yen, a four-month low against the Norwegian crown of 7.4010 crowns and an 11-1/2 year low of 8.4350 crowns against the Swedish crown . A statement by the ECB saying Greek government bonds are not eligible as collateral didn't help the euro either, with the currency hitting session lows against the dollar on the news. Earlier in the session the euro dipped on a German newspaper report that quoted a member of a party in the coalition government as saying euro zone countries should comply with agreed reforms or leave the bloc, traders said. The comments repeated the position taken earlier this year by the same lawmaker, Gerda Hasselfeldt, of the Bavarian Christian Social Union. Besides concerns about the euro zone's sovereign debt crisis, the euro has taken a hit since the European Central Bank lowered its deposit rate, which acts as the floor for euro zone money market rates, to zero earlier this month. Two-year bond yields have dipped into negative territory in core triple-A rated Germany and the Netherlands. The negative interest rates could prompt investors who are bearish on the euro's outlook to shift money elsewhere to secure some return on capital, market players said. "If you believe we have a long period of highly accommodative policy in Europe you might as well go on a search for yield elsewhere," said Simon Derrick, head of currency research at Bank of New York Mellon. COMMODITY CURRENCY STRENGTH Many analysts said the fact commodity currencies were rallying against the euro despite concerns about Chinese growth is slowing was a sign that weakness in the single currency could continue. The potential for another round of asset buying from the U.S. Federal Reserve may help support commodities and the Australian dollar, analysts said. Speculation the Fed may opt for another round of monetary easing to boost growth, which would increase the supply of dollars in the system, slowed the euro's decline against the U.S. currency. The ECB deposit rate cut and subsequent drop in money-market rates has also stirred talk of euro-funded carry trades, in which investors effectively borrow low-yielding currencies to invest in higher-yielding currencies and assets.
- Tweet this
- Share this
- Digg this