In US trade, the euro slipped to fresh two-year lows as the European crisis reared its ugly head again.
After a relatively positive week, spurred on by reassuring testimony from Fed Chairman Ben Bernanke that the Fed stood ready to act with further stimulus should the labour market not improve, it was renewed concerns over Spain and Greece that pushed markets lower.
While Finance Ministers approved a €100 billion bank bailout package, reports that Valencia, one of Spain’s highly indebted states was set to seek a central government bailout, sent shudders through the market. Valencia’s financial woes and that of several other regions had the market worried that it was only a matter of time before Spain required a full-blown sovereign bailout from the EU/IMF. GDP growth downgrades for 2013 and 2014 from the Spanish Government and rating agency Egan Jones cutting its Spanish rating to CC+ from CCC+ also added to the session’s negative theme.
Fears that this week’s Troika visit to Greece will reveal a government that is not meeting the terms of its bailout package also has the market on edge, with the IMF suggesting it will withhold further aid in such an event. Once again, the prospect of a Greek default and exit from the EU are very much on the cards. Having ended Friday’s Australian session around the 1.2250 level, the euro slumped to close US trade at 1.2157. Upon resuming for Asian trade, the euro has continued to lose ground, falling into the high-1.2120s.