Euro exchange rate drops broadly as Spain troubles intensify

A struggling euro fell to a session low versus the US dollar and all-time lows against the Canadian and Australian dollars on Friday on the back of the Valencia region in Spain’s announcement that it would seek help from the central government in order to pay back its debts.

This news heightened concerns that Spain, the fourth largest economy in the euro zone, might not be able to stay clear of a complete international bailout, as 10-year yields are currently trading above the seven per cent mark which is viewed as unsustainable.

A statement saying the region’s finance ministers formally approved the troubled country’s bank bailout was unable to lift the gloom. The single currency fell by roughly 0.7 per cent versus the greenback to $1.2187, slightly above $1.2162, the two-year low hit last week.

RBC Capital Markets’ global head of FX strategy Adam Cole said that the Valencia news was clearly the catalyst, but that he’s a little surprise about how violent the market’s reaction has been. He added, however, that he is of the opinion that it may have been a reflection of wider negative sentiment as well as stops being taken out after the move got going.