Euro hits two-week low on Spain concerns

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The euro hit its lowest level in two weeks as political tension in Spain and growing concerns over how soon the country would request a bailout caused a sharp rise in Spanish borrowing costs.

The single currency hit a session low of $1.2834, its weakest level since the day before the US Federal Reserve announced a third round of monetary easing, as the yield on Spanish 10-year government bonds rose above 6 per cent.

Haven currencies were in demand on Wednesday as the US dollar and the Japanese yen strengthened against their main counterparts amid concerns over Spain as well as how far global central banks could stimulate growth.

The dollar rose against the euro, the pound and the Australian dollar and fell against the yen amid rising risk aversion in the currency markets.

Concern over the health of Spanish banks returned after German, Dutch and Finnish finance ministers released a statement on Tuesday saying a plan to move bad bank assets off the books of struggling governments would not apply to “legacy assets”.

“We expect the corrective and consolidative action in the currency markets to continue in the coming days, with European events to remain the focus,” said analysts at Wells Fargo.

“The exact details of the Spanish events will clearly dictate the euro’s near-term fortunes.”

The pound fell 0.3 per cent to $1.6144, while the Australian dollar dropped 0.2 per cent to $1.0361.

Sterling also continued to rise against the euro ahead of a currency fix due on Friday related to a payment to UK farmers under the EU’s Common Agricultural Policy. The pound gained 0.1 per cent to €1.2557.

The Swedish krona underperformed after surveys showed a dip in confidence among consumers and manufacturers, heightening concerns over the health of the Swedish economy.

“Today’s disappointing confidence added to the picture of further moderation of expectations and outlook surrounding the Swedish economy,” said analysts at Citigroup.

The US dollar rose 0.5 per cent to SKr6.60, and the euro climbed 0.2 per cent to SKr8.4856. Meanwhile, the yen rose against other big currencies including the euro and sterling on haven demand. The dollar was flat at Y77.80, having hit an earlier low of Y77.57.

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