| TOKYO, April 16
TOKYO, April 16 The euro slumped on Monday,
hitting a one-month low against the dollar and 1-1/2 year nadir
against the British pound as soaring bond yields in Spain
rekindled worries about the fragile state of the euro zone
Broad risk-averse sentiment in financial markets also hurt
commodity currencies such as the Australian dollar and lifted
the yen to a seven-week high against the dollar.
The news over the weekend that China doubled the yuan's
daily trading band against the dollar to one percent has so far
had limited impact on major currencies, with market players
still struggling to figure out its implications.
The euro slipped to as low as $1.30089, just shy of
its March 15 low of $1.30041, with traders also trying to hit
options trigger said to be lurking at $1.30.
Spain's government bond yields rose and the cost of insuring
its debt hit an all-time high on Friday, as record borrowing by
its banks from the European Central Bank highlighted fears about
the country's finances before it tests market appetite for its
debt on Thursday.
Data showed Spanish banks borrowed a record 316.3 billion
euros ($412 billion) from the ECB in March, almost double the
previous month's total, as they remained virtually excluded from
wholesale credit markets.
European Central Bank Governing Council member Klass Knot
said on Friday he did not expect the ECB to provide more cheap
three-year cash and hoped the bank never has to buy bonds again.
However, Knot said the ECB could still support the bond market
should the need arise.
"It is hard to find a definitive trigger for the moves ...
concerns about Spain have lingered and the market may be
responding to any perceived lack of support for the periphery,"
Barclays Capital analysts wrote in a client note.
As the euro has stayed in roughly the $1.30-35 range since
February, a clear break of the $1.30 mark could sour sentiment
over the euro.
But some players think support around that level is likely
to hold this time as well, believing the European Central Bank
could support banks one way or another.
"I'm not sure if you can keep selling the euro just because
bond yields are rising," said a trader at a Japanese bank.
Against the yen, the euro fell to an eight-week low of
105.25 yen. Against sterling it fell to 0.8221 pound
, its lowest level since September 2010.
The euro's fall could put pressure on the euro/Swiss franc,
which has been trading just above the 1.20 franc floor set by
the Swiss central bank in September. It last stood at 1.2017
"I wonder if the Euro/Swiss can hold up when the euro is
falling across the board. It will be interesting to see whether
the market will try to test the floor," said another Japanese
With risk aversion back in play, market players bought back
the yen, driving down the dollar to seven-week low of 80.442 yen
While many market players had expected the dollar to stay
above 80 yen due to expectation of another monetary easing by
the Bank of Japan later this month, some see more chance of
short-covering in the yen as data showed last week speculators'
net yen short positions remained near five-year high.
Commodity currencies also came under pressure. The
Australian dollar fell 0.6 percent to $1.0316, edging
closer to a three-month low of $1.0226 hit last week.
Some traders said the Aussie was undermined by speculation
that Chinese shares could fall after China doubled the size of
the currency's trading band, a move that is seen crucial in
liberalising the market but could also hurt Chinese exports.
But others said Beijing's weekend decision to allow more
yuan flexibility is positive for risk sentiment, believing that
Chinese authorities would not push ahead with financial reforms
at this time if they were not confident of avoiding a hard
In the end, it may have limited impact as the move is
unlikely to alter market views for a gradual yuan appreciation
of around 2 to 3 percent this year. And in fact the yuan
weakened on the first day of trading after the wider band was