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Euro pressured as debt worries fester

SYDNEY- The euro eased to fresh one-week lows against the dollar on Monday, extending a broad pullback started late last week when worries about Europe’s debt crisis saw Spanish bonds come under renewed pressure.

The euro edged down to $1.3057 from around $1.3080 late in New York Friday. Immediate support is seen at $1.3033, the April 9 low. Traders said a break below $1.3000, where options barriers are cited, could accelerate the single currency’s decline.

Against the yen, it slipped to 105.62 from 106.04. On the Aussie, the euro fetched A$1.2620, having plumbed a one-month low of A$1.2584 Friday.

The euro’s weakness helped push the dollar index towards 80.000, well off last week’s trough at 79.208. The dollar flatlined on the yen at 80.89 with solid support, perhaps semi-official, around 80.50.

“It is hard to find a definitive trigger for the moves...concerns about Spain have lingered and the market may be responding to any perceived lack of support for the periphery,” Barclays Capital analysts wrote in a client note.

European Central Bank Governing Council member Klass Knot said Friday he did not expect the ECB to provide more cheap three-year cash and hoped the bank never has to buy bonds again. However, Knot said the ECB could still support the bond market should the need arise.

His comments came as data showed Spanish banks borrowed a record 316.3 billion euros from the ECB in March, almost double the previous month’s total, as they remained virtually excluded from wholesale credit markets.

Spain’s government bond yields rose and the cost of insuring its debt hit an all-time high.

With risk aversion back in play, commodity currencies also came under pressure. The Australian dollar fell to $1.0363 , from Friday’s peak of $1.0453.

Traders said there is talk of buying interest in the Aussie ahead of $1.0340, the 50 percent retracement of last week’s rally from $1.0226 to $1.0453.

Still, the Aussie’s decline was pretty measured and traders said any optimism on China, Australia’s single largest export market, could further underpin the currency.

Indeed, some see Beijing’s weekend decision to allow more yuan flexibility as positive for risk sentiment, believing that Chinese authorities would not push ahead with financial reforms at this time if they were not confident of avoiding a hard economic landing.