Euro down from four-month peak on Spain uncertainty

The euro lost ground on the dollar for the second consecutive day on Tuesday as investors started to bet on its recent rally rising too high, too quickly, as focus turned back to debt-ridden Spain.

Pressure is mounting on Spain to finally request aid and ensure the European Central Bank’s bond-purchasing programme launches. The ECB’s plan would see Spain’s borrowing costs reduced at a time when the country’s 10-year bond yields have gone up to over six per cent.

However, Spain is proving to be stubborn on the issue, with Soraya Saenz de Santamaria, the country’s deputy prime minister, saying yesterday that the government is still mulling over the bailout’s terms, which include help from the central bank.

The deputy prime minister’s comments tested investors’ patience further. Even if the country does eventually request assistance, experts claim it might not be all positive for the single currency because the spending cuts involved with the aid would pressurise an economy that is already stuck in recession.

The euro’s rally has seen it jump by eight per cent since falling to a two-year trough of $1.2040 in July. The turn in fortunes was triggered by the ECB and the US Federal Reserve carrying out aggressive actions in order to prop up their respective struggling economies.