Reuters: US Dollar Report: FOREX-Euro slips on mounting concerns on Spanish debt

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FOREX-Euro slips on mounting concerns on Spanish debt Jun 8th 2012, 16:16 Fri Jun 8, 2012 12:16pm EDT * Euro slumps after Spanish rating downgrade * Weak Italian, German economic data adds to gloom * Lack of policy action from Fed hits riskier currencies * Spain expected to request aid package at weekend: sources NEW YORK, June 8 (Reuters) - The euro fell on Friday after a three-notch downgrade to Spain's credit rating and signs of economic weakness in Italy and Germany. The developments left the currency vulnerable as concerns mount that the euro zone debt crisis is getting worse. European Union and German sources told Reuters Spain was expected to ask for an aid package over the weekend to prop up its troubled banks.. Rating agency Fitch slashed Spain's credit rating on Thursday, leaving it just two notches above junk status. It signaled further downgrades could come as the country tries to restructure its troubled banking system. "Spanish tensions should remain in the spotlight, with some reports suggesting that Spain may officially request EU aid as early as this weekend," said Vassili Serebriakov, currency strategist at Wells Fargo Bank. "Soft European data has probably added to selling pressure on the euro." The euro was last down 0.6 percent at $1.2485, retreating from a two-week high of $1.2625 hit on Thursday after a surprise interest rate cut by the Chinese central bank. More losses would leave the euro vulnerable to a test of the 23-month low of $1.2286 hit on June 1, using Reuters data, after failing to break above chart resistance at $1.2623, the January low. The euro also took a knock after Italian industrial production fell far more than expected in April and German imports tumbled at their fastest rate in two years, adding to euro zone recession concerns. The euro came off its lows after China said it would cut fuel prices by nearly 6 percent from Saturday, which some traders saw as another positive step that may help stimulate China's economy. But some analysts were concerned that by cutting rates on Thursday China might have been looking to pre-empt grim news from Chinese data due out over the weekend. "The news with the easing measures in China would normally be positive for risk assets, but the market is cautious," said Ian Stannard, currency strategist at Morgan Stanley in London. "Below $1.2290 would leave $1.20/$1.19 in view, but the euro could get some positive surprises on the way that could lead it back up to the $1.26/$1.27 area." Still, the euro was up 0.5 percent for the week at current prices, its first weekly gain after 5 straight weeks of losses. It needs to close above $1.2429 to ensure a weekly gain, using Reuters data. EURO WORRIES Many analysts said the euro could come under further pressure next week as attention refocuses on political turmoil in Greece before an election on June 17. A victory for anti-bailout parties would raise the possibility of Greece leaving the currency union. The euro fell 0.7 percent against the yen to 99.28 yen. The safe-haven Japanese currency gained broadly as market sentiment declined, with the dollar losing 0.2 percent to 79.48 yen. Currencies with more perceived risk were also under pressure after U.S. Federal Reserve Chairman Ben Bernanke offered no hints of imminent monetary stimulus in his testimony to Congress on Thursday, wrongfooting some market players who had positioned for a dovish statement. "The recovery (in the euro) we saw in the last few days was not a sustainable one," said Lutz Karpowitz, currency strategist at Commerzbank, who forecast the euro would be around $1.20 by the end of June. The higher-yielding Australian dollar slipped 0.2 percent against the U.S. currency to US$0.9876. Thomson Reuters released its monthly foreign exchange trading volumes for May 2012 on Friday. May average daily volume was $154 billion, up from $130 billion in April but down from the $161 billion reported in May, 2011. ICAP said on Friday that average daily spot FX volumes on the EBS platform, which competes with Thomson Reuters, were $130.8 billion for May. Link this Share this Digg this Email Reprints

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