WSJ:WORLD FOREX: Euro Sags Amid Continued Political Uncertainty
-- Euro trades near or breaches multi-month lows against dollar and yen
-- Benchmark Spanish government borrowing costs back above 6%
-- Australian dollar trades near parity versus dollar
By William Kemble-Diaz
Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--The euro sagged near or breached multi-month lows against the dollar and yen in European trade Wednesday as bond markets and banking stocks continued to quake, shaken by the widening political fault lines that risk shending the euro zone's efforts to tackle its debt crisis.
Elsewhere, the pound lost ground ahead of a Bank of England monetary policy statement due Thursday, while the Australian dollar flirted with a move back below parity against the buck.
There was little appetite among investors to place aggressive bets as they struggled to decipher what the election of a left-leaning French president and the absence of a credible government in Greece might mean for the euro zone's German-led austerity fix.
The jury is still out on the extent to which French president-elect Francois Hollande and German Chancellor Angela Merkel will be able to reconcile their differences to restore confidence in the euro zone, while fresh Greek elections are seen as increasingly likely after a weekend vote failed to deliver a clear winner.
"No one has a crystal ball for this," said Anthony Chung, director of research and currency strategies at AllianceBernstein Limited.
Yields on benchmark 10-year Spanish government bonds nonetheless popped back above 6%, within sight of their highs for 2012, while those on comparable German bunds fell to a record low as fixed income investors lost no time discriminating between safe and not-so-safe assets in Europe.
Currency strategists also said they saw further trouble ahead for the single currency.
"We see a gradual depreciation of the euro over the course of the year. We're currently targeting a move to $1.25 by year-end, but depending on how things go in Greece we might have to revise that forecast even lower," said Peter Kinsella, a currency strategist at Commerzbank.
By 1152 GMT, the euro was trading at $1.2972 against the dollar, compared with just over $1.30 late Tuesday in New York. Against the yen, the single currency fell to as low as JPY103.22, its weakest level since Feb. 16.
Analysts at Credit Suisse said the probability of Greece exiting the euro zone had now risen to 15% from 5%.
Away from the euro, the Australian dollar bumbled along just above parity against the buck after the government Tuesday outlined spending cuts to help it achieve a budget surplus next fiscal year and retain its triple-A credit rating.
Kinsella said that opened the door to further Australian interest rate cuts after the Reserve Bank of Australia last week surprised markets with a chunky half-a-percentage-point cut.
The pound was also dragged down against the greenback as the euro sagged, but the yen stood out as a rare gainer against the dollar due to its own safe-haven status, despite the Bank of Japan's penchant for a weaker Japanese currency, as did the Polish zloty after the country's central bank raised its rates.
Other emerging market currencies, like the South African rand and Turkish lira, were mostly weaker.
At 1053 GMT, the dollar was at Y79.630 against the yen, compared with Y79.870 in late New York trade Tuesday.
The pound was trading at $1.6115 against the dollar, compared with $1.6160 late Tuesday in New York.
The ICE Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was trading at 79.995, compared with 79.871 late Tuesday in New York.
A summary of key levels for chart-watching technical strategists is below:
