Euro feels Asia heat as Spanish fears prevail

Mon Jul 23, 2012 1:56am EDT
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By Antoni Slodkowski

TOKYO (Reuters) - The euro was hammered to a near 12-year trough against the yen and plunged to record lows versus the Australian dollar on Monday, starting the week under strong pressure from fears that Spain may eventually need a full sovereign bailout.

Such was the lack of market confidence that Spanish bond yields hit their highest levels since the euro was created, even as euro zone finance ministers approved the terms of a loan of up to 100 billion euros on Friday for Madrid to recapitalize its banks.

The euro bought 94.66 yen, having fallen as far as 94.59, a trough not seen since late 2000. Against the greenback, it touched a 25-month low around $1.2103, creeping ever closer to the 2010 trough around $1.1876.

Traders cited talk of an option barrier at $1.2100.

"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."

More bad news emerged over the weekend from the debt-ridden country when another region, Murcia, said on Sunday it would seek government financial assistance, while media reported half a dozen regional governments were ready to follow in the footsteps of Valencia.

"There is nothing good from Europe and that keeps the euro under pressure, especially the first half of the week when we have euro zone data", said Yuji Saito, director of foreign exchange at Credit Agricole Bank in Tokyo, referring to consumer confidence and manufacturing reports due on Monday and Tuesday.

According to Reuters data, the euro reached an all-time low against the Australian dollar at A$1.1671, taking losses so far this month to more than 5 percent.   Continued...

A picture illustration shows a 100 Dollar banknote laying on one Dollar banknotes, taken in Warsaw, January 13, 2011. REUTERS/Kacper Pempel