The euro may fall below $1.20 for the first time in almost two years as concern that Spain is struggling with its finances adds to bets Europe’s debt crisis will worsen, Brown Brothers Harriman & Co.’s Marc Chandler said.
The currency may sink to the “high teens” by September, Chandler, New York-based global head of currency strategy at the bank, said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. The euro, which traded at $1.4940 in May 2011, fell today to $1.2516 in New York trading as Spain weighed helping Catalonia with debt financing and recapitalizing BFA-Bankia, which it nationalized two weeks ago.
“The risk is that Spain, we’d say in the U.S., the banks are too big to fail, and it’s questionable whether the euro zone has already committed resources that are sufficient to bail out Spain should it need it,” Chandler said.
The Catalonia region needs Spanish central-government help to access funding, Catalan President Artur Mas said. The region is complying “strictly” with its budget program and will honor its commitments, according to a statement.
The Catalan news is “the key factor pushing the euro back down to those lows,” Chandler said.
The euro has “optionality and barriers” at about $1.25, Chandler said. It briefly slipped below that level today to $1.2496, the lowest since July 2010. It last traded below $1.20 in June 2010.
“If we go through there, we go through there hard,” said Chandler, who has taught classes on international political economy at New York University since the 1990s and wrote the book “Making Sense of the Dollar.”
The Spanish 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 today. The nation will also recapitalize BFA-Bankia with as much public money as necessary, as the group needs at least 9 billion euros ($11 billion) to comply with banking rules, Economy Minister Luis de Guindos said this week.
Yields on Spanish government 10-year notes climbed 15 basis points today, or 0.15 percentage point, to 6.31 percent. They touched 6.51 percent on May 16, the highest since November.
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