Reuters: US Dollar Report: FOREX-Spain, Greece worries spark broad euro slide

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FOREX-Spain, Greece worries spark broad euro slide Jul 23rd 2012, 09:02 Mon Jul 23, 2012 5:02am EDT * Euro hits 2-year low vs dollar, near 12-year low vs yen * Fall broad-based; hits record low vs Aussie * Worries grow about Spain, possibility of Greece exit By Jessica Mortimer LONDON, July 23 (Reuters) - Fears Spain will have to seek a full sovereign bailout, coupled with mounting worries that Greece may leave the euro, sent the euro sliding to a two-year low against the dollar and a near 12-year trough against the yen on Monday. Spanish bonds yields soared to their highest levels since the euro was created, despite euro zone finance ministers approving on Friday terms for a loan of up to 100 billion euros for Madrid to recapitalise its banks, and analysts said this was the prime driver of the euro's fall. Murcia became the second Spanish region to request financial assistance from the government, after Valencia, with media reports suggesting six regions could seek aid. "What began as a Spanish banking bailout looks to be moving rather quickly towards a possible sovereign bailout. Overlay that with increasingly negative news on Greece and you get a fairly negative mix, so the path of least resistance for the euro is down," said Jeremy Stretch, currency strategist at CIBC. The euro fell to $1.20821, its weakest since June 2010 and creeping ever closer to the 2010 low of $1.1876. Against the yen it dropped more than 1 percent on the day to 94.23 yen, a level not seen since late 2000. The euro tumbled not just against safe havens like the dollar and the yen but also against currencies which usually fall in times of heightened risk aversion in financial markets. It hit a record low against the Australian dollar , a more than 3-1/2 year low against the British pound and a 9-1/2 year low against the Norwegian crown . "It is difficult to find any currency the euro can outperform, which underlines the sheer uncertainty ahead," CIBC's Stretch said, adding the perceived risks of a euro zone break-up were growing. Even any short-term positives or bouts of short-covering would only be taken as an excuse to sell the euro, he said. GREECE WORRIES The prognosis for Greece also appeared to darken, only adding to the reasons for investors to sell the euro. German magazine "Der Spiegel" reported on Sunday that the International Monetary Fund may not take part in any additional financing for Greece, highlighting growing frustration with Athens. Speaking two days before a team of international lenders arrive in Athens to push for further spending cuts in return for more rescue payments, Prime Minister Antonis Samaras said Greece was in a "Great Depression" similar to the United States in the 1930s. Looking ahead, analysts said any weakness in euro zone provisional purchasing managers' surveys on manufacturing and services sector activity due on Tuesday would only add to the gloom and intensify selling pressure on the euro. With risk aversion back on the rise, the safe-haven U.S. dollar and yen found good support. The dollar index jumped 0.4 percent to a two-year high of 83.835 and the dollar also hit a 19-month high against the Swiss franc. The yen was the biggest gainer, rising to a seven-week high of 77.94 yen per dollar. "With such strong risk aversion it is the yen and the dollar that will keep gaining against risk currencies," said Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ in Tokyo. "The Spanish scenario has not been priced in yet." The euro fell against the Australian dollar to around A$1.1690 and hit a trough of 77.56 pence against sterling. But the Australian currency fell sharply against the dollar and was last down 0.9 percent at $1.0280, with traders saying worries about slower Chinese growth only added to investor risk aversion. Link this Share this Digg this Email Reprints

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