The euro dropped against the dollar amid renewed concern that the debt crisis in the euro region is spreading to Spain. The common currency also fell against the yen after El Economista reported that the International Monetary Fund, the European Union and the US Treasury are putting together a credit line of as much as €250bn for Spain.
The report was denied by the EU and the Spanish government. “Focus is back on Spain after a couple of days of news about global growth,” said Arne Lohmann Rasmussen, chief currency analyst with Danske Bank in Copenhagen.
“Most of the euro’s recent gains came from short covering, and the move up is petering out,” he said, referring to investors buying back euros to unwind bets that the currency would fall.
It was at 112.75 yen from 112.78 yesterday in New York. Rasmussen predicted the common currency will sink to $1.15 in three months. The euro also declined after it failed to stay above $1.235, a level important to maintain the currency’s recent upward momentum, according to BNP Paribas.
“The rebound we’ve seen in the euro is purely a correction,” said Ian Stannard, an analyst in London at BNP Paribas. “We’ll soon head lower again.”
The yield premium investors demand to hold Spanish 10-year government bonds instead of German bunds rose to a euro-era record after the report of IMF aid.
The difference in yield, or spread, between the securities widened to 216 basis points, the most since 1997, Bloomberg generic data shows.