Reuters: US Dollar Report: FOREX-Euro slips on Spain worries, near record low vs Aussie

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FOREX-Euro slips on Spain worries, near record low vs Aussie Jul 20th 2012, 04:12 Fri Jul 20, 2012 12:12am EDT * Recent falls in short-term rates seen negative for euro * Dollar/yen stuck near previous day's 6-week low By Masayuki Kitano SINGAPORE, July 20 (Reuters) - The euro eased against the dollar and hovered near a record low versus the Australian dollar on Friday, undermined by worries about Spain's fiscal woes and recent falls in euro zone money-market rates. Weak demand at a bond auction pushed Spain's 10-year bond yield above 7 percent on Thursday for the first time in more than a week, intensifying doubts over whether Madrid can avoid a full-blown bailout. The euro eased 0.1 percent to $1.2269, staying above a two-year low of $1.2162 hit on trading platform EBS last week. The single currency held steady against the Australian dollar at A$1.1780, stuck near Thursday's record low around A$1.1735. Besides investor jitters over the euro zone's sovereign debt crisis, the euro has taken a hit this month after the European Central Bank lowered the deposit rate, which acts as the floor for euro zone money market rates, to zero. Also, the fact that German and Dutch two-year bond yields have turned negative recently has fanned talk about the possibility of an investor shift out of euro zone assets. "There is a global trend in which the euro seems like the weakest currency," said Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo, adding that falls in shorter-term euro zone interest rates have further eroded the incentive for holding euros. "I think we could see this trend in euro/Aussie continue over the longer term," Maeba said, referring to the euro's weakness against the Australian dollar. The euro has been weighed down against the yen recently due to selling by institutional investors, Maeba added. The euro declined 0.1 percent against the yen to 96.39 yen , having dipped to as low as 96.131 yen on Thursday, its lowest level since June 1. A drop below 95.59 yen would take the euro to its lowest level against the yen since November 2000. The ECB deposit rate cut and subsequent drop in money-market rates have stirred talk of euro-funded carry trades, i n which investors effectively borrow low-yielding currencies to invest in higher-yielding currencies and assets. "The euro is being viewed as a funding currency and there are increasingly active moves on the back of that," said a trader for a major Japanese bank in Bangkok. Still, economic conditions do not seem to favour the carry trade as much as they did around 2005 to 2007, when the yen was the funding currency of choice and the global economy enjoyed a period of stable growth, said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore. "Economic conditions are weak compared to the heyday of the carry trade. What's clearly different compared to then is that the global economy now seems to be headed downwards," Okagawa said. The dollar edged up 0.1 percent versus the yen to 78.62 yen , but still remained stuck near Thursday's six-week low of 78.42 yen. Link this Share this Digg this Email Reprints

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