Euro slumps to new two-year dollar low

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IOL world currency1 Graphic: Renjith Krishnan.

The European single currency tumbled on Tuesday to a new two-year dollar low, as traders questioned whether the latest eurozone deal would resolve Spain's massive debt problems.

At 16:20 SA time, the shared eurozone unit dived as low as $1.2246, which was the lowest level since July 1, 2010. That beat the previous two-year trough of $1.2251 that was hit the previous day.

“Clearly, news that Spanish banks could have access to 30 billion euros by the end of the July if necessary has failed to avert concerns surrounding the outlook for the banking sector and the sovereign in that country,” said Rabobank analyst Jane Foley.

After marathon talks in Brussels, eurozone finance ministers agreed to offer Spain 30 billion euros ($37 billion) this month to help its distressed banks.

They also extended a deadline for Madrid to cut its public deficit to the European Union's 3.0 percent limit by one year to 2014 because of the difficult economic conditions. But traders were unimpressed.

“Eurozone finance ministers have agreed to a 30-billion-euro aid package that can be made to Spain by month's end, and in response, both Spanish short- and long-term bonds' yields have fallen back,” said DailyFX currency analyst Christopher Vecchio.

“However, with uncertainty lingering - how many more bailouts will Spain need? - the euro has fallen across the board.”

Many investors remain highly sceptical that European policymakers are able to resolve the region's long-running debt problems.

“Investors are unconvinced, yet again, that policymakers can come up with durable solutions to the eurozone debt and banking crisis,” added VTB Capital economist Neil MacKinnon. - Sapa-AFP

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