MW: Euro dips below $1.24 as dollar gains momentum
Ways to bail out European banks top list of worries
By Sue Chang and Deborah Levine, MarketWatch
SAN FRANCISCO (MarketWatch) — The U.S. dollar gained momentum Wednesday, strengthening against key competitors, as the euro dipped below $1.24 for the first time since mid-2010 on persistent worries about Europe’s debt crisis.
The ICE dollar index DXY +0.42% , which gauges the greenback’s performance against a basket of six major currencies, climbed to 82.878 from 82.468 late Tuesday.
The euro EURUSD -0.85% fell as low as $1.2385 and recently traded at $1.2405, down from $1.2493 in North American trade late Tuesday. It hasn’t closed below $1.24 since June 2010, according to FactSet.
“From a strategy perspective, we are looking for $1.2188 -- the next low, which was June 2010 -- but ultimately $1.20 and beyond is possible in the medium term,” she said.
A Financial Times report that the European Central Bank had rejected Spain’s plans to recapitalize troubled lender Bankia SA ES:BKIA -8.60% weighed on the euro.
Yields on 10-year Spanish government bonds ES:10YR_ESP +0.12% surged to 6.685%, up 22 basis points. One basis point is one one-hundredth of a percentage point.
Yields are back near the Nov. 25, 2011 intraday high of 6.779% and closing high of 6.723% — their highest levels since the euro’s inception. Read story on Spanish bond yields.
“There is an air of inevitability about Spain, similar to what happened with Ireland and Portugal, when the rise in their bond yields seemed unstoppable,” said Kathleen Brooks, research director at Forex.com.
“The situation in Spain is getting ugly, a bailout could cost upwards of 380 billion euros, and we don’t even know if Germany is willing to provide this sort of cash, especially since it seems unlikely that Greece and Ireland will be able to return to the capital markets next year for financing,” she said.
Still, the euro bounced off the lows of the day after the European Commission said in a set of reports that the European Stability Mechanism — the region’s permanent rescue fund — might be given permission to directly recapitalize the currency union’s ailing banks. As of now, the European Stability Mechanism can only lend to euro-area member states. Read more about European rescue fund, banks .
European equities also suffered, with the Stoxx Europe 600 index XX:SXXP -1.53% off 1.5% at 240.56. See story on European stocks.
On Tuesday, the European shared currency came under heavy selling pressure after Egan-Jones Ratings Co. downgraded Spain’s debt rating to B from BB-minus with a negative outlook. Read about euro, dollar.
There is “no question” the euro-dollar pair remains under pressure, and further losses could hinge on catalysts that could come from a variety of “serious and realistic risks,” said Kathy Lien, director of currency research at GFT.
“Despite the recent decline in the [euro], inflationary pressures in the euro zone are softening according to the latest German consumer price report. ... This gives the European Central Bank plenty of flexibility to ease monetary policy, and the only question is when they will act,” she added.
Among other major currency pairs, the British pound GBPUSD -0.81% fell to $1.5528 from $1.5640.
Against the Japanese yen, the dollar USDJPY -0.67% slipped to ÂĄ78.96 from ÂĄ79.49.
Sue Chang is a MarketWatch reporter in San Francisco.
Sara Sjolin contributed to this report.
