Euro falls to three-week low against US dollar as IMF warns of ‘severe’ challenges facing Spain.
Worries about Spain‘s perilous economic outlook and the threat it poses to its fragile eurozone neighbours intensified on Thursday night as investors dumped the euro and riskier government bonds ahead of the long holiday weekend. A poorly received Spanish bond auction earlier in the week continued to spread jitters around Europe with economists warning Spain could become the latest flashpoint in the sovereign debt crisis. The International Monetary Fund fanned those fears by asserting Spain is facing “severe” challenges. It insisted last week’s strict budget must be put into practice, with Spain meeting European Union demands for it to cut its deficit. “We will point to the need to ensure compliance with the new target, not just at the central level also at the regional government level,” said IMF spokesman Gerry Rice. “Clearly the challenges Spain is facing are severe. Market sentiment remains volatile.” The euro fell to a three-week low against the dollar on concerns about repercussions for the wider currency zone from problems in Spain, whose economy is twice the size of that of Greece, Ireland and Portugal combined. Borrowing costs on Spanish and Italian bonds continued to rise as investors moved into assets seen as less risky, including German and US government bonds. In thin pre-holiday trading, stock markets in Europe closed little changed on the day.