After a slight incline for the euro last week, the currency dropped greatly after new fears for the Spanish economy and bonds spooked traders. This is because data revealed Spain’s Valencia is seeking help for their growing debt. After this was discovered, the euro hit record new record lows against the Aussie dollar, Canadian dollar, and New Zealand dollar. In addition, the euro hit an astonishing eleven year low versus the Japanese yen. This massive slump came as somewhat of a surprise as the euro was starting to perk up in the middle of last week, and some had hopes that the currency would start to pick up.
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A cut by the Spanish government of its economic growth
forecasts for 2012 and 2013 also pressured the euro. Spain’s
revised estimates indicated that the country would be mired in
recession well into next year.
As a result, the euro zone common currency plunged to record
lows against the Australian, Canadian, and New Zealand dollar.
It also hit a more than 11-year low against the yen, a
three-and-a-half-month low against sterling and multi-month
troughs versus the Norwegian and Swedish crowns.
Spanish 5- and 10-year debt yields surged to euro-era highs
as Valencia, Spain’s most indebted region alongside Catalonia,
sought help under an 18-billion-euro program passed on Thursday
aimed at helping regional finances.
“It’s all about Spanish bond yields today, and the euro as a
result is under pressure,” said Martin Briggs, risk advisory
consultant for global payments company AFEX Markets Plc in
London.
“We have been telling our clients that this euro is a
slow-motion train crash that’s happening in front of our eyes.
No-one seems to have the will or the ability to make the tough
decisions that need to take place.”
A statement saying euro zone finance ministers formally
approved Spain’s bank bailout failed to offset the gloom.
The euro fell as low as $1.2143 against the U.S. dollar,
its weakest level since mid-June 2010, as traders took
out an options barrier at $1.2150. It was last at $1.2159, down
nearly 1.0 percent on the day, declining for a third straight
session and posting losses of about 0.7 percent this week.
It was the third week of declines for the single currency
against the dollar.
The single currency hit record lows against the
higher-yielding Australian dollar, the Canadian dollar
and New Zealand dollar.
The euro hit a more than 11-year low against the Japanese
yen of 95.34 yen, a three-and-a-half-year low against
the British pound, a four-month trough against the
Norwegian crown and an 11-1/2-year low against the
Swedish currency.
In data collated to July 17, speculators had increased bets
against the euro. Changes in speculative positions
after the Valencia news will only appear in data collated
through July 24.
A statement by the ECB saying Greek government bonds are not
eligible as collateral did not help the euro, with the currency
declining further against the dollar on the news.
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 euro has also 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.
On Friday, a surprising turn of events caused the euro to tank, setting record lows against currencies across the board. Even against the U.S. dollar, the euro set a new two year low, which is quite surprising as it was overshadowing the U.S. currency early last week. In addition to falling against the U.S. dollar, the euro hit record lows against the Australian dollar, Canadian dollar, and New Zealand dollar- doing the worst against the yen and reaching an unbelievable eleven year low.
This slump came on the heels of the news that Spain’s Valencia region is seeking help from the central government to repay its debt. Cuts by the Spanish government of its own forecast put more pressure on the euro and the revised estimate indicate no foreseeable stability.
The news is just adding to the mounting concerns over the euro zone’s fourth largest economy and the area may seek a full scale international bailout. This news also promises that the crisis over the euro zone debt will surely continue into next year- if not further.
Do you think this turmoil will get even worse pushing into next week? Or do you think it will start to level and hold strong?
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