The euro extended its fall against the dollar to break through the psychological barrier of $1.30 for the first time in two months as Spanish debt fears continue to drive markets lower.
EURUSD dropped to a low of 1.2993 in early European trading hours, maintaining its bearish tone from the past week. The risk for more weakness to occur linger as last week’s jump in borrowing costs for Spain and Italy provided a clear signal that the euro zone’s debt problems are far from solved.
Until recently, the focus had briefly shifted away from Europe’s problems with the conclusion of Greece’s second bailout and the European Central Bank LTRO bringing a calming effect on the financial sector with cheap loans. However, renewed fears of debt contagion resurfaced at the end of last week when Spain’s government bond yields jumped to 6 percent and the cost of insuring its debt hit an all-time high on Friday.
Data showed Spanish banks borrowed a record 316.3 billion euros from the ECB in March, almost double the amount of the previous month.