RPT-FOREX-Euro slumps on mounting Spanish and Greece concerns

by on July 23, 2012 5:37 pm BST

Mon Jul 23, 2012 1:37pm 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 stemming Spain and Greece fiscal

NEW YORK, July 23 (Reuters) – The euro slipped to a two-year
low against the dollar and a near 12-year trough against the yen
on Monday on concerns Spain will have to seek a full sovereign

Spanish bond yields soared to the 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 to
recapitalise Spain’s banks. Analysts said this was the prime
driver of the euro’s fall.

Tiny Murcia was on course to be the second Spanish region to
request help from the central government, and media reported
half a dozen local authorities were ready to follow in the
footsteps of Valencia..

Spanish media believe six regions will now seek help after
the announcement by the heavily indebted Valencia rattled
markets on Friday, complicating Madrid’s efforts to avoid a
full-blown bailout..

Catalonia, Spain’s biggest region by gross domestic product,
also has the highest debt. It said this week it had not decided
whether to tap the funding mechanism, though it is an
increasingly likely candidate.

“The week is off to a challenging start as rising fears over
Europe push risk aversion higher,” said Camilla Sutton, chief
currency strategist at Scotia bank in Toronto. “Most of the
focus is on Spain, with rising concern it too will need to
access financial aid.

“With no EU summit on the horizon and European vacation
season upon us, capital is moving rapidly from the more exposed
regions to the stronger sovereigns,” Sutton said.

The euro fell as low as $1.2067, its weakest since
June 2010 and creeping ever closer to the 2010 low of $1.1875,
using Thomson Reuters data. The euro was last at $1.2110, down
0.4 percent from Friday’s close.

After closing at $1.2156 in New York on Friday, it “gapped”
lower to open at $1.2120 in Asia on Monday morning, signifying
the market perceived the value of the euro had dropped over the
weekend in response to events in the euro zone.

Some $6.16 billion of euros have changed hands on Reuters
Dealing through the Monday session.

Against the yen the euro dropped to 94.22 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 that usually fall
in times of heightened risk aversion in financial markets.

At the session lows of the day it hit a record low versus
the Australian dollar, a more than 3-1/2 year low
against sterling and a 9-1/2 year low versus the
Norwegian crown.


The prognosis for Greece also appeared to darken, only
adding to the reasons for investors to sell the euro.

The International Monetary Fund, responding to a report in
German magazine Der Spiegel that it might not take part in
additional funding for Greece, issued a statement saying it was
“supporting Greece in overcoming its economic difficulties.”

IMF officials are due to meet Greek authorities starting
Tuesday to try get the country’s economic program back on track.

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 that of 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 also hit a
19-month high against the Swiss franc.

The yen was the biggest gainer. The dollar fell to a
seven-week low against the yen of 77.95 yen. The dollar
was later little changed at 78.43 yen.

Japan’s vice finance minister for international affairs was
reported as saying the country will not exclude any options when
responding to excessive currency moves, although traders said
the authorities were unlikely to consider intervening while the
dollar held above 76 yen.

The Australian currency fell sharply against the dollar
and was last down 1.1 percent at $1.0260, with traders
saying worries about slower Chinese growth only added to
investor risk aversion.