Euro slips versus dollar as Spain uncertainty weighs

Tue Sep 18, 2012 10:46am EDT
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By Wanfeng Zhou

NEW YORK (Reuters) - The euro fell against the dollar on Tuesday as uncertainty about the future of debt-laden Spain prompted some traders to book profits after driving it to a four-month high.

Pressure is growing on Spain to request aid and trigger a European Central Bank bond-buying program seen as inevitable to help the country finance its debts, with benchmark 10-year bond rising to just over 6 percent.

This even as Spain's Deputy Prime Minister Soraya Saenz de Santamaria said on Tuesday the government was still considering the terms of a European bailout, a condition of ECB help, weighing further on investors' patience.

The euro has risen more than 8 percent since hitting a two-year low around $1.2040 in July, fueled by aggressive central bank actions in both Europe and the United States to help their struggling economies. But that euphoria is starting to wear off.

Even if Spain does request assistance, analysts say it may not be a positive sign for the euro as the tough spending cuts that come with the aid would put further pressure on an economy already in recession.

"You are looking at a Spanish economy that has 25 percent unemployment and a huge overhang of residential mortgages. Even if you write a lot of those down, you are still talking about fiscal austerity so you can't grow your way out of arguably a recession," said Lane Newman, director of foreign exchange trading at ING Capital Markets in New York.

The euro fell 0.5 percent to $1.3052, having hit $1.3169 on Reuters data on Monday, its highest since May 4.

Option barriers were seen around $1.32.   Continued...

Japanese 10,000 yen notes are spread out at Interbank Inc. money exchange in Tokyo, in this September 9, 2010 picture illustration. REUTERS/Yuriko Nakao