The euro weakened to the least versus the yen since November 2000 and to a two-year low against the dollar on concern European policy makers aren’t doing enough to resolve the region’s financial crisis.
The 17-nation shared currency added to its three-week loss versus the greenback as Spain said its recession will extend into next year as the region of Valencia prepared to seek a rescue from the central government. Spanish borrowing costs approached a euro-era record even after European finance ministers gave full approval to an aid package of as much as 100 billion euros ($122 billion) for the nation’s banks.
“The headlines that are coming out of Spain and Europe have been adding to pressure on the euro,” Eric Viloria, senior currency strategist at Gain Capital Group LLC in New York, said in a telephone interview. “Growth is a major concern, and that could be the next thing that puts more pressure on the euro.”
The shared currency dropped as much as 1.2 percent to 95.35 yen, the lowest level since November 2000, before trading at 95.43 yen at 5 p.m. New York time. It declined 1.6 percent on the week.
The euro fell as much as 1.1 percent to $1.2144, the weakest since June 2010, before trading at $1.2157, down 1 percent. It lost 0.8 percent on the week. Japan’s currency rose 0.1 percent to 78.49 to the greenback, which depreciated 0.9 percent over the past five days in its fourth weekly loss.
The yen and dollar rose against most major currencies as investors sought safety, while the euro fell against most.
The euro sank 5.2 percent over the past three months, the worst performer with the Swiss franc among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen was the biggest winner, climbing 8.6 percent. The U.S. and Australian dollars each gained 4.1 percent.
The shared currency will probably decline to the “mid $1.15s over the next few weeks,” Shaun Osborne, chief currency strategist at Toronto-Dominion Bank’s TD Securities unit in Toronto, wrote today in a note to clients. The currency is in a “deeply-entrenched bear trend,” Osborne wrote.
The euro slumped to the lowest in more than three years versus the pound before data from the single-currency region next week that economists said will show consumer confidence was close to a three-year low and manufacturing contracted for a 12th month.
The pound appreciated 0.3 percent to 77.83 pence per euro and reached 77.71 pence, the strongest level since October 2008. The U.K. currency fell 0.7 percent to $1.5623.
Spain’s benchmark 10-year bond yield climbed to as high as 7.284 percent, almost matching the 7.285 percent it touched a month ago. The 7 percent level was the threshold for global bailouts of Greece, Ireland and Portugal. Debt due in 2020 issued by Catalonia, the biggest Spanish regional economy, yielded 13.24 percent.
The difference between Spanish and German 10-year bond yields widened to a record 613 basis points today, or 6.13 percentage points.
A plan by Spain to offer emergency loans to its regions leaves the Treasury with 12 billion euros of additional funding needs. The Cabinet approved creating the 18 billion-euro fund last week to help regions that have lost access to markets meet debt redemptions and finance deficits. The state-owned lottery will provide 6 billion euros. Economy Minister Luis de Guindos said yesterday the plan won’t affect Spain’s borrowing program.
“The market is more concerned about Spain going down the same route as Greece, looking for a sovereign bailout,” Dean Popplewell, an analyst in Toronto at the online currency-trading firm Oanda Corp., said in a telephone interview. “It doesn’t paint a rosy picture for capital markets.”
Greece was the first euro member to get a bailout.
An index of consumer sentiment in the euro bloc fell to minus 20 in July, a Bloomberg News survey forecast before the European Commission reports the data July 23. It reached minus 21.3 in December, the lowest since August 2009. A factory gauge is estimated to be at 45.2 this month, a separate survey showed before the July 24 report. A reading of 50 divides expansion from contraction.
The biggest loser among major currencies today was South Africa’s rand, which weakened as investors speculated the country’s central bank may reduce interest rates again after a surprise cut yesterday. The South African Reserve Bank’s Monetary Policy Committee lowered its repurchase rate to 5 percent from 5.5 percent, the first cut since November 2010.
The rand dropped 1.5 percent to 8.2868 per dollar.
The Canadian dollar fell the most in two weeks versus the greenback as Canada’s annual inflation rate rose less than forecast in June, 1.5 percent, dimming the outlook for higher interest rates. The currency declined as much as 0.6 percent, the biggest intraday drop since July 6, to C$1.0131 to the greenback before trading at C$1.0125.
Australia’s dollar fell versus its U.S. counterpart for the first time in six days as investor risk appetite sank. Data due next week also is forecast to show the nation’s consumer prices grew at the slowest year-over-year pace since June 1999, increasing scope for the Reserve Bank of Australia to lower interest rates.
The South Pacific currency depreciated 0.5 percent to $1.0378 and declined 0.6 percent to 81.46 yen.
The Aussie’s risk-adjusted loss of 0.16 percent against the dollar this year is the fourth-largest among major currencies, the Bloomberg Riskless Ranking showed. The euro was the worst performer, losing 0.69 percent versus the greenback.
The risk-adjusted return, which isn’t annualized, is calculated by dividing total return by volatility, or the degree of daily price variation, giving a measure of income per unit of risk. A higher volatility means the price of an asset can swing dramatically in a short period, increasing the potential for unexpected losses.