LONDON—The euro drifted lower in European trading hours Friday, despite reports that Spain could be set to request international aid for its struggling banks as soon as this weekend.
The euro was recently trading at $1.2458 compared with $1.2561 late Thursday, according to EBS via CQG. The common currency traded at ¥98.75 from ¥99.99 and it was unchanged at 1.2010 Swiss francs. Sterling traded a $1.5428 compared with $1.5526. The dollar was at ¥79.28 from ¥79.64.
Just one day after Fitch Ratings delivered a chunky three-notch downgrade to Spanish debt, a euro-area official said that aid for the country is a "likely" topic for a teleconference among European Union finance ministers and other senior officials this weekend. There hasn't yet been a decision on how or when to provide support for the country, the official added.
Earlier, European Central Bank's Governing Council member Ewald Nowotny said it would be sensible for Spain to seek assistance for its troubled banking sector before the price of aid becomes too expensive.
"We think it's sensible to do that, because the longer one waits to take reform steps the more expensive it gets," Mr. Nowotny told reporters on the sidelines of a news conference.
However, traders and investors proved themselves reluctant to push the euro higher, with the common currency dribbling down to the day's low of $1.2446.
Lingering expectations that authorities could produce a grand solution to the rumbling euro-area debt crisis are likely to hold back some would-be euro sellers in the short term. "This afternoon, some people will think about announcement risk and square up their positions," said Daragh Maher, a currencies analyst at HSBC in London.
Trader pessimism has been further fueled by data flow from the euro zone. Italy's industrial output fell 9.2% against consensus expectations of a 6.4% contraction. Data from Greece also showed that recession in the country looks set to deepen in the second quarter of the year, with the economy contracting 6.5% on an annual basis in the first three months of 2012.
Nervousness about more bad news about the global economy also persisted ahead of a rush of data due Saturday from China, with many analysts suspicious that Thursday's surprise interest-rate cut from China presages a dreary run of official data.
"The near-term determinant of whether this mood continues will be the critical Chinese May activity indicators," said the Royal Bank of Canada Capital Markets in a research note.
China will publish inflation numbers, industrial output figures and producer prices data Saturday, and Sunday will see the release of trade figures.
