May 25 (Bloomberg) -- The euro dropped to the lowest level against the yen since November 2001 and fell against the dollar on concern that weakness in the Spanish banking system will act as a drag on the economy.
The single currency declined after the International Monetary Fund urged Spain to do more to overhaul its ailing banks, adding to speculation Europe’s financial institutions may face more losses. The Japanese currency gained as a decline in stocks boosted demand for the yen as a refuge. The won slumped as tensions escalated between the two Koreas over the sinking of a warship from the South’s navy in March.
“What’s happening in Spain has added to concerns about the euro,” said Henrik Gullberg, a foreign-exchange strategist at Deutsche Bank AG in London. “The market is concerned that this financial-market uncertainty will feed through into the real economy.”
The euro weakened 1.8 percent to 109.66 yen as of 10:09 a.m. in London after dropping to as low as 109.34 yen. The common currency depreciated 1.3 percent to $1.2212. The dollar declined to 89.71 yen, from 90.29 yen.
The 16-nation euro slid to a four-year low of $1.2144 on May 19.Spain’s banking industry “remains under pressure” as consolidation has been “too slow,” the Washington-based IMF said in a report yesterday after a regular review of Spain."We fully support” the new austerity measures, it said, referring to Spain’s plans to rein in its budget deficit with the deepest spending cuts in three decades.
Austerity can be avoided by sensible fiscal positions when times are good, or is that too complicated?
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