Reuters: US Dollar Report: FOREX-Euro falls broadly as Spain woes intensify

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FOREX-Euro falls broadly as Spain woes intensify Jul 20th 2012, 12:19 Fri Jul 20, 2012 8:19am EDT * Falls after Valencia says seeking debt help * Euro hits record low vs Aussie, Canadian dollar * Commodity currency strength expected to continue By Michael Szabo LONDON, July 20 (Reuters) - A struggling euro hit a session low against the U.S. dollar and record lows against the Australian and Canadian dollars on Friday after Spain's Valencia region said it will seek central government help to repay its debts. 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. A statement saying euro zone finance ministers formally approved Spain's bank bailout failed to offset the gloom. The euro fell around 0.7 percent against the dollar to $1.2187, just above a two-year low of $1.2162 hit last week. "(Valencia) was clearly the catalyst. I'm slightly surprised the market has reacted as violently as it has, but I think that's a reflection of broader negative sentiment and stops being taken out once the move got going," said Adam Cole, global head of FX strategy at RBC Capital Markets. 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. The single currency hit record lows against the higher-yielding Australian dollar at A$1.1727 and the Canadian dollar at C$1.2305. 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 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. The euro hit a seven-week low against the Japanese yen of 95.79 yen, a four-month low against the Norwegian crown of 7.4135 crowns and an 11-1/2 year low of 8.4450 crowns against the Swedish crown. Link this Share this Digg this Email Reprints

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