The euro weakened across the board on Thursday, hitting another record low against the Australian dollar, as Germany warned Spain's financial troubles are far from over and its government should be ultimately responsible for European aid to its banks.
Ahead of a German parliamentary vote on aid for Spanish banks, German Finance Minister Wolfgang Schaeuble said the mere perception of insolvency risk in Spain could cause contagion in the euro zone.
The euro [EUR= 1.2257 -0.0026 (-0.21%) ] hit session lows at $1.2229 in the wake of Schaeuble's comments and was last at $1.2242, down 0.3 percent on the day.
Analysts expect the euro to retest a two-year low of $1.2162 hit last week because investors, discouraged by a lack of progress being made towards solving the euro zone debt crisis, continue to shun the currency in favor of safer havens.
"There's a lot of back and forth like a roller-coaster on who's liable for Spanish aid," said Boris Schlossberg, managing director at BK Asset Management in New York.
"Basically, the Germans are being strict that the liability stays with the sovereign and all that does is exacerbate the debt burden of the sovereign and the market doesn't like that."
Spanish 10-year yields climbed back above 7 percent after Schaueble's comments, from about 6.9 percent just before. Spain earlier sold 3 billion euros in debt at a higher cost than previous auctions.
The euro also fell 0.6 percent against the yen to 96.20 yen and hit a record low of A$1.1744 against the higher-yielding Australian dollar [EURAUD=X 1.1766 -0.0087 (-0.73%) ], as well as hitting a 3-1/2-year low against the UK pound [EURGBP=X 0.7802 -0.0039 (-0.5%) ].
"The theme is one of carry plays because there is so much excess money out there that people are looking to get any sort of return on their investment, whether in bonds or in equities," said Ankita Dudani, currency strategist at RBS.
