Reuters: US Dollar Report: FOREX-Euro hits 2-year low on worries Spain needs external help

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FOREX-Euro hits 2-year low on worries Spain needs external help May 31st 2012, 00:50 Wed May 30, 2012 8:50pm EDT * Worries growing Spain needs external help * Euro/yen edges nears 11-year low, hit in Jan * Dollar/yen hits 3 1/2-month low, Aussie/yen at 6-month low * US bond yield at 60-yr low, undermining dlr/yen By Hideyuki Sano TOKYO, May 31 (Reuters) - The euro hit a two-year low on Thursday over mounting concerns Spain may need assistance to fix its leveraged banking sector in a shrinking economy. Spanish government bond yields surged to a six-month high while German bond yields fall to record lows, pushing the spread between the two to a fresh record high. "Things are starting to look ugly. It seems like the market is making Spain its next target after Greece," said Teppei Ino, currency analyst at Bank of Tokyo-Mitsubishi UFJ. The euro fell to as low as $1.2368 on Thursday. It last stood at $1.2363 in early Asian trade. The common currency also fell to 97.74 yen, edging near a 11-year low of 97.04 yen, hit in January. The euro's fall was driven by concerns that Spain, an economy bigger than that of Greece, Portugal and Ireland combined, will probably need assistance as its fragile economy and ailing banking sector make it impossible to cut deficit. So far, though, Madrid has ruled out seeking Europe's help for its banks, while EU paymaster Germany has firmly opposed any collective European banking resolution and guarantee system. "There's a huge amount of flight-to-quality moves right now. Only a policy coordination in Europe can stop this but markets can't find it now," said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank. "Until we see that, people will do a trade that will minimise losses rather than make profits," Sera added. Spain is by no means the only concern for investors, with markets rattled by Greek polls showing parties for and against a bailout are neck-and-neck ahead of the country's second election on June 17. The dollar fell to as low as 78.86 yen, its lowest in 3 1/2 months, as investors favoured the yen, the currency of the world's largest creditor nation despite a mountain of debt. Fall in U.S. bond yields also helped to push down the dollar against the yen, as the currency pair is known to have strong correlation with the yield gap between the two countries. The 10-year U.S. bond yield fell below 1.6 percent , not seen at least for six decades an cutting yield advantage over JGBs to near the lowest level in recent decades. The Australian dollar fell 0.3 percent to a fresh six-month low of $0.9673, after having fallen 1.3 percent on sharp fall on oil and commodity prices on Wednesday. Selling by Japanese accounts against the yen was also a driver in its fall, with the Aussie/yen falling to six-month low of 76.355 yen. Link this Share this Digg this Email Reprints

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