Euro Shorts Reach Record as Spain, Greece Concern Damp Demand

Futures traders boosted bets that the euro will depreciate against the dollar to a record high as concern increased that Spain’s banking crisis will worsen and Greece may exit the 17-nation currency union.

Hedge funds and other large speculators increased wagers on a euro drop for a fourth straight week in the five days ended May 29, Commodity Futures Trading Commission data showed today. The surge came during a week in which Greece’s anti-bailout political party gained in the polls and as Spanish leaders debated how to recapitalize Bankia group.

“Positions are getting more extended,” said Brian Kim, a currency strategist in Stamford, Connecticut, at Royal Bank of Scotland Group Plc. “It’s not just because of the crisis, but also data getting weak and expectations that the ECB could ease in the second half of the year.”

The difference in the number of wagers on a decline in the shared currency compared with those on a gain, known as net shorts, was 203,415, the most since the euro’s inception in 1999. It was the third consecutive weekly record.

The euro rose 0.5 percent to $1.2427 at 4:47 p.m. in New York and fell as low as $1.2288, a level not seen since July 2010. It dropped to 95.60 yen, the lowest since November 2000.

Spanish 10-year bond yields surged to 6.7 percent May 30, a level last reached in November. The Bankia group, a Spanish lender nationalized last month, 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.

Greece Election

The nation earlier this week backtracked on a plan to use government debt instead of cash to bailout BFA-Bankia, the nation’s third-largest lender, as Prime Minister Mariano Rajoy struggles to shore up the nation’s lenders without overburdening public finances.

A Greek poll on May 24 showed the Syriza party, which is opposed to implementing the country’s international rescue program, with 27.2 percent support ahead of June 17 elections. A poll today showed New Democracy, the largest pro-bailout party, leading the Syriza party with 22.7 percent support against Syriza’s 22 percent. Greek parties failed to form a coalition government following an inconclusive May 6 election.

The European Central Bank meets June 6. It has left its benchmark interest rate unchanged at 1 percent since cutting rates twice by 25 basis points each time in November and December last year.