The euro touched its lowest level since July 2010 against the dollar amid concern the bloc’s sovereign-debt crisis was deepening in Spain.
The shared currency erased earlier gains against the dollar and yen after Catalan President Artur Mas repeated his call for Spanish central government to help regions access funding and remained lower after Standard & Poor’s cut the credit ratings of five Spanish banks. Brazil’s real rose against all its most-traded counterparts as the central bank said it will offer currency-swap contracts at auction.
“Catalonia reinforces the firmly negative sentiment that is in place in the investor mindset across asset classes,” said Samarjit Shankar, a managing director for the foreign-exchange group in Boston at Bank of New York Mellon. “The specter of uncertainty will continue to dangle over market sentiment and, in that backdrop, it’s difficult to call a break in the euro downtrend.”
The euro fell 0.1 percent to $1.2517 at 5 p.m. New York time after touching $1.2496, the least since July 6, 2010. It was little changed at 99.75 yen. The Japanese currency traded 0.1 percent weaker at 79.68 per dollar.
Hedge funds and other large speculators increased wagers the euro will decline versus the dollar to a record high for a second consecutive week. So-called net shorts increased for a third week, totaling 195,361 in the period ended May 22 compares to 173,869 for the week before, according to the Commodity Futures Trading Commission.
Catalonia is complying “strictly” with its budget program and will honor its commitments, according to a statement. Spain’s government is analyzing “with all caution” requests from regional governments to help them regain access to capital markets, Deputy Prime Minister Soraya Saenz de Santamaria said.
The Bankia group, a Spanish lender nationalized earlier this month and one of three banks cut to junk today, will seek 19 billion euros ($23.8 billion) of government funds as it provisions against real estate and non-property loans, according to a regulatory filing.
Spanish 10-year yields rose 15 basis points, or 0.15 percentage point, to 6.31 percent. They touched 6.51 percent on May 16, the highest since November.
The U.S. 10-year Treasury (USGG10YR) yield fell four basis points to 1.74 percent. Cumulative net inflows in to U.S. Treasuries were more than twice as strong today as average in the past year, according to BNY Mellon data.
Brazil’s real rose for a third day against the dollar, trading 2.1 percent stronger at 1.9874. The central bank sold 14,000 currency-swap contracts at auction today, it said in a statement.
Swaps were offered a fourth consecutive day in a bid to stem the real’s decline. Brazil’s currency headed for a 1.3 percent weekly advance, its first since April 6 and the most against the greenback among major peers.
Australia’s dollar was 0.1 percent weaker at 97.58 U.S. cents and New Zealand’s dollar gained 0.1 percent to 75.40 U.S. cents as technical indicators signaled the South Pacific currencies had fallen too quickly.
“There is a lot of short interest in the currencies and it doesn’t matter how bad the news is,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. (WBC) in New York. “They are probably going to withstand the news and we’ll see some short covering today.” Short covering is when investors end bets an asset will decline.
Amid heightened uncertainty in the euro bloc, offshore investors in the Chilean peso forwards market increased their bearish bets a record $9.8 billion this week. The peso declined 0.2 percent to 509.56 per U.S. dollar.
Europe’s shared currency was 2.1 percent lower versus the dollar this week, taking its decline this month to 5.5 percent, after a Greek opinion poll showed an anti-bailout party gaining support before June 17 elections. It’s down 1.2 percent versus the yen in the past five days, leaving it down 5.9 percent in May.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, rose 0.1 percent to 82.402, after climbing as high as 82.461, the most since September 2010.
The euro declined 1.2 percent this week, the biggest loser along with the Swiss franc among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar added 1.1 percent, the biggest gain, and the yen rose 0.2 percent.
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