NEW YORK (Dow Jones)--European debt fears returned with a vengeance Friday to sink the euro, which fell near a record low against the Swiss franc as fears grew that Greece may need to restructure its debt.
After scaling near two-year peaks in early May on expectations of higher euro-zone interest rates, the single currency has tumbled sharply as Europe's unresolved debt crisis reaches new proportions. Longstanding speculation about a potential restructuring of Greek debt has driven the euro down by about 5% since the start of the month--and prompted Fitch Ratings on Friday to downgrade Greece's credit ratings by three notches.
Meanwhile, acute fears of contagion have hit Spain, the euro zone's fourth largest economy. Although the Iberian nation has instituted broad reforms, its economy is still viewed by many analysts as vulnerable to upheaval in its banking sector and debt markets, and spillover from the financial distress roiling Europe's peripheral economies.
Those concerns manifested themselves in a widening of the yield differentials between Spanish and German benchmark debt, which coalesced with jitters over Spain's regional elections.
Selling pressure on Spanish bonds challenges the notion "that Spain has managed to decouple from the rest of the periphery," said Daniel Katzive, foreign-exchange strategist at Credit Suisse. "That is key for the market to be able to take the view that Greece is an isolated problem, and is not a systemic risk for the rest of the euro area."
The cost to insure Spanish government debt expressed by five-year credit default swaps widened to 261 basis points on Friday from 226 basis points late on May 16, according to data provider Markit.
Late Friday, the euro was at $1.4162 from $1.4312 late Thursday, according to EBS via CQG. The dollar was at Y81.69 from Y81.59, while the euro was at Y115.65 from Y116.83. The U.K. pound was at $1.6242 from $1.6235. The dollar was at CHF0.8775 from CHF0.8807, while the euro fell to 1.2424, not far from a record low at 1.2398.
The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at 75.626 from about 75.123.
In a measure of just how unsettled markets are over Greece's fate, news that Norway, Iceland and Lichtenstein would suspend approximately $42 million worth of economic and social grants to the cash-strapped Mediterranean nation was initially misinterpreted as being related to its debt crisis.
This news heaped additional selling pressure on the single currency, and merged with fears about political risk in Spain.
"Going into the weekend is the risk is that there's a shift of power in the [Spanish] regional elections," said Jessica Hoversen, fixed-income and foreign-exchange analyst at MF Global in Chicago. Investors are worried that there will be "a repeat of Catalonia's [elections] five months ago when debt figures were revised higher."
The most curious development of the broad risk aversion has been the new lease on life it has given the dollar as a safe-haven currency. Despite having its own debt and economic woes, the dollar has temporarily emerged as a winner in Europe's financial crisis, if only by default.
"It would seem that investors are becoming increasingly concerned that the dollar isn't the only currency struggling to check out from its stay at the Hotel California," wrote Andrew Wilkinson, senior market analyst at Interactive Brokers, referring to a popular song about a sinister hotel from which guests find themselves unable to escape.
Late Friday, the International Monetary Fund approved a EUR26 billion ($36.81 billion) three-year loan to Portugal, as part of a bailout of the struggling euro-zone country.
copied from http://online.wsj.com/article/BT-CO-20110520-713015.html
After scaling near two-year peaks in early May on expectations of higher euro-zone interest rates, the single currency has tumbled sharply as Europe's unresolved debt crisis reaches new proportions. Longstanding speculation about a potential restructuring of Greek debt has driven the euro down by about 5% since the start of the month--and prompted Fitch Ratings on Friday to downgrade Greece's credit ratings by three notches.
Meanwhile, acute fears of contagion have hit Spain, the euro zone's fourth largest economy. Although the Iberian nation has instituted broad reforms, its economy is still viewed by many analysts as vulnerable to upheaval in its banking sector and debt markets, and spillover from the financial distress roiling Europe's peripheral economies.
Those concerns manifested themselves in a widening of the yield differentials between Spanish and German benchmark debt, which coalesced with jitters over Spain's regional elections.
Selling pressure on Spanish bonds challenges the notion "that Spain has managed to decouple from the rest of the periphery," said Daniel Katzive, foreign-exchange strategist at Credit Suisse. "That is key for the market to be able to take the view that Greece is an isolated problem, and is not a systemic risk for the rest of the euro area."
The cost to insure Spanish government debt expressed by five-year credit default swaps widened to 261 basis points on Friday from 226 basis points late on May 16, according to data provider Markit.
Late Friday, the euro was at $1.4162 from $1.4312 late Thursday, according to EBS via CQG. The dollar was at Y81.69 from Y81.59, while the euro was at Y115.65 from Y116.83. The U.K. pound was at $1.6242 from $1.6235. The dollar was at CHF0.8775 from CHF0.8807, while the euro fell to 1.2424, not far from a record low at 1.2398.
The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at 75.626 from about 75.123.
In a measure of just how unsettled markets are over Greece's fate, news that Norway, Iceland and Lichtenstein would suspend approximately $42 million worth of economic and social grants to the cash-strapped Mediterranean nation was initially misinterpreted as being related to its debt crisis.
This news heaped additional selling pressure on the single currency, and merged with fears about political risk in Spain.
"Going into the weekend is the risk is that there's a shift of power in the [Spanish] regional elections," said Jessica Hoversen, fixed-income and foreign-exchange analyst at MF Global in Chicago. Investors are worried that there will be "a repeat of Catalonia's [elections] five months ago when debt figures were revised higher."
The most curious development of the broad risk aversion has been the new lease on life it has given the dollar as a safe-haven currency. Despite having its own debt and economic woes, the dollar has temporarily emerged as a winner in Europe's financial crisis, if only by default.
"It would seem that investors are becoming increasingly concerned that the dollar isn't the only currency struggling to check out from its stay at the Hotel California," wrote Andrew Wilkinson, senior market analyst at Interactive Brokers, referring to a popular song about a sinister hotel from which guests find themselves unable to escape.
Late Friday, the International Monetary Fund approved a EUR26 billion ($36.81 billion) three-year loan to Portugal, as part of a bailout of the struggling euro-zone country.
copied from http://online.wsj.com/article/BT-CO-20110520-713015.html
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