Forex - EUR/USD plunges past 2 year low on Spanish debt fears

Investing.com - The euro traded lower against the U.S. dollar  Tuesday, as worries increased concerning unprecedented Spanish borrowing costs and bearish euro zone economic data diminished growth forecasts.

EUR/USD hit 1.2056 during U.S. afternoon trade, taking out the 2 year low; moving down 0.51%

Upside resistance exists at 1.2282, Friday’s high.

Sentiment on the euro was hit by fears that Spain will be the next country in the euro zone to require a full-scale bailout after the yield on Spanish 10-year bonds rose to a euro-era high of 7.60% on Tuesday, well above the 7% threshold considered unsustainable if a country is to remain solvent.

Earlier Tuesday, Spain successfully auctioned EUR3.02 billion of three and six-month government bonds but at higher yields than in previous auctions.

Further adding to the gloom, data showed that manufacturing activity in Germany slowed to the lowest level in more than three years in July, just one day after rating’s agency Moody’s cut its outlook on Germany to negative from stable.

Separate reports showed that manufacturing activity in the euro zone contracted at the fastest pace since May 2009 in July, while the French manufacturing sector contracted at the fastest pace in 38 months.

The weak euro zone data offset a report showing that China’s HSBC manufacturing purchasing managers index improved to 49.5 in July, its highest level since February, from a final reading of 48.2 in June. 

While the index remained below the 50 level which indicates contraction, the improvement from the previous month eased concerns over a slowdown in the world’s second largest economy.

The euro was hovering close to a 12-year trough against the yen, with EUR/JPY down 0.46% to 94.55 and was within striking distance of a three-and-a-half year low against the pound, with EUR/GBP shedding 0.43% to hit 0.7780.

In addiiton Tuesday, representatives from the European Union and the International Monetary Fund were holding talks with the Greek government in Athens, aimed at getting the country’s economic reform program back on track, amid ongoing speculation over a possible Greek exit from the euro zone.