The euro extended yesterday’s downtrend against its major rivals on Tuesday in Asia as the Spanish Government’s decision to nationalise an ailing bank CajaSur fueled concerns about the strength of the European economy.
The Bank of Spain unveiled a rescue plan over the weekend for regional savings bank CajaSur, which could cost up to 2.7 billion euros, weighing the already strained Spain’s public finances down and further undermining confidence in the stability of European financials.
Further, four regional savings banks in Spain have announced that they have agreed to merge some operations to form a single group worth around EUR 135 billion in assets, reports said yesterday.
The merger deal, which includes Caja de Ahorros de Mediterraneo, Cajastur, Caja de Extremadura and Caja Cantabria, is intended to consolidate the finances of the banks involved.
The International Monetary Fund supported Spain’s plans to rein in its budget deficit with the deepest spending cuts in three decades and urged to take more steps to overhaul its ailing banks.
The euro slumped to a 6-day low of 1.2272 against the US dollar and 0.8562 against the pound around 1:30 am ET, compared to yesterday’s closing quotes of 1.2372 and 0.8578, respectively. On the downside, the common currency may target support levels at 1.1830 against the greenback and 0.8490 versus the pound. At present, the euro is worth 1.2286 dollars and 0.8569 per pound.
Against the yen, the single currency slipped to a 5-day low of 110.26 around 1:45 am ET and a move below its May 20th low of 109.49 could set its weakest level in more than 8-1/2 years. The euro-yen pair that closed yesterday’s deals at 111.71 is presently quoted at 110.34.
The Japanese Deputy Prime Minister Naoto Kan said today noted that the current turmoil jolting the global stock markets will gradually subside. Kan, who doubles as the minister of economy and fiscal policy, made the comments to reporters after a morning cabinet meeting.
He also touched on the issue of the country’s special account that handles the government’s foreign exchange transactions, whose appraisal loss bloated to an all-time high last fiscal year due to the yen’s weakening.
The euro also fell to a 5-day low of 1.4257 against the Swiss franc before moving in a holding pattern around 1:30 am ET. The euro-franc pair is presently worth 1.4277 and sliding below its early May low of 1.4005 could set its weakest in record.
Looking ahead, the Italian consumer confidence for May and retail sales for March, UK’s first quarter GDP and the euro-zone industrial new orders data for March are expected in the upcoming European session.
Across the Atlantic, S&P/Case-Shiller home prices for March, consumer confidence data and the Richmond Fed’s manufacturing index-both for May are expected in the North American session.
