The euro fell to a nearly four-month low against the dollar on Monday on fears Greece could exit the euro and worries that weak industrial data signalled that Europe was heading for recession. Concerns about slowing Chinese and global growth also drove down higher-yielding currencies and boosted the safe-haven dollar and yen.
The Australian dollar fell to a five-month low against the greenback, while the New Zealand dollar dropped to a 4-1/2-month trough. Greece's political impasse, as a major Greek leftist party refused to join a unity government or create a government of technocrats, also pushed the country's sovereign spreads over German bunds to their widest level since November.
Greece's troubles helped drive up Spain's and Italy's borrowing costs. Spain's bill auctions also showed weak demand on Monday, with yields of 2.985 percent, sharply higher from 2.623 percent seen last month. "We've seen widening spreads between peripheral debt and German bunds, especially Spain, Italy and Greece," said Greg Moore, currency strategist at TD Securities in Toronto. "These are clear pressures on the euro and risk currencies. If we continue to see these signals, we would see further US dollar and yen strength."
Adding to bearish sentiment on the euro was data showing eurozone industrial production unexpectedly fell in March, driving worries that the region's recession may not be as mild as policymakers hope. The euro fell as low as $1.2823, its lowest level since January 18. It was last at $1.2835, down 0.6 percent. It has lost 3.1 percent so far this month after losing 0.8 percent in April. Some are forecasting a break toward $1.20.
Intraday bias in euro/dollar remains on the downside. The rebound from this year's low of $1.2623 has ended at $1.3486 - the high hit on February 24 - and the current fall should target a retest of the 2012 trough, analysts said. In the options market, one-month at-the-money implied volatility in euro/dollar rose above 10 percent on Monday, a one-week high. The cost of protecting against a euro decline, meanwhile, as shown in 25 delta risk reversals data, rose to 2.05 percent from 1.95 percent last Friday.
The dollar index, which measures the greenback's value against six major currencies, rose for a fifth straight session, hitting a two-month high at 80.69. It was last at 80.54 yen, up 0.5 percent. Flows data from US custody bank BNY Mellon showed that the dollar was the most sought after currency on Monday among institutional investors, net bought for six successive trading sessions.
Among G-10 currencies, the Norwegian krone and Swedish krona were the most net sold, the BNY Mellon data showed. The New Zealand dollar hit a 4-1/2-month low of US $0.7753, while the Australian dollar dipped below parity versus the US dollar for the first time in nearly five months, slipping as low as US $0.9954.
The Aussie failed to gain even after China's central bank cut the amount of cash banks must hold as reserves on Saturday, freeing an estimated 400 billion yuan ($63.5 billion) for lending to head off the risk of a sudden slowdown in China, the world's second largest economy. Broad dollar demand pushed the greenback against the Swiss franc to a near four-month high at 0.9365 franc, though it was down 0.1 percent against the yen at 79.87 yen. The euro also struggled against the yen, falling 0.7 percent to 102.48 yen, after posting a low of 102.20 yen, its weakest level since February 16.
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