Markets: News  

Dollar tops 2-year high on Greece, Spain fears

NEW YORK (MarketWatch) -- The dollar rallied against most major currencies Monday while the euro zone faced more pressure as Spain's borrowing costs escalated and Greece faced a possible cutoff in aid.

The euro (EURUSD) fell to $1.2133 from $1.2161 in North America late Friday.

The currency touched its lowest level since June 2010, according to FactSet.

The ICE dollar index (DXY) , which measures the greenback against a basket of six major currencies, climbed to 83.6400 from 83.457 Friday.

The Japanese yen, like the dollar, is widely considered a haven where investors seek refuge during periods of financial stress.

The euro (EURJPY) dropped to 95.12 yen, after falling as low as ¥94.24, a level that hadn't been seen since 2000. Late Friday, the European currency bought ¥96.42.

"Risk-off is certainly the dominant theme this morning, and we see little on the horizon this week to change the tide," said Christian Lawrence, currency strategist at Rabobank International. For the rest of the week, "there is much that could boost the flow into perceived-safe-haven assets."

The euro's losses, which follow Friday's weak performance, came in the wake of a news report that the International Monetary Fund was set to stop aid for Greece, a decision that could potentially push the debt-stricken European nation into bankruptcy. Read about IMF Greek aid suspension

According to an IMF spokesperson, "an IMF mission will start discussions with the country's authorities on July 24 on how to bring Greece's economic program, which is supported by IMF financial assistance, back on track."

At the same time, fears about Spain raged on, amid reports that the Valencia and Murcia regions could ask for Madrid's assistance.

"There has been little in the way of positive press since Friday, and as such, markets have started the week as they finished the last -- with a decided air of risk aversion," said Sue Trinh, senior currency strategist at RBC Capital Markets.

Spanish bond yields soared, with the 10-year yield (10YR_ESP) jumping by about a quarter percentage point to 7.46%, while the two-year yield soared nearly 0.9 percentage point to 6.51%. Yields rise as bond prices fall.

Spain's announcement of a short-sale ban also moved the market.

"Since the decision shortly after 8:30 a.m. ET, investors have continued the exercise of short-covering in Madrid," Andrew Wilkinson, chief economic strategist for Miller Tabak, said in a note.

Traders who had bet on further falls by Spanish stocks, and a gain in German ones, "took a pounding as result of the ban on short sales," he said.

Wilkinson noted accelerated losses for German stocks in response to the Spanish ban announcement. Read about European stocks.

"What had been a gentle decline in German issues all morning suddenly turned into a rout," he wrote.

U.K. pound, Japanese yen

The WSJ dollar index (BUXX) , a new benchmark tracking the U.S. unit's moves against some of the world's most heavily traded currencies, rose to a high of 72.76 Monday, settling at 72.52 in late trade, up from 72.33 on Friday.

The British pound (GBPUSD) fell to $1.5523 from $1.5619.

The Australian dollar (AUDUSD) traded at $1.0279, down from $1.0382.

Against the Japanese currency, the dollar (USDJPY) fell to ¥78.38 from ¥78.47.

The yen held its gains against the dollar and the euro, as well as many other currencies, despite a warning from Japan Finance Minister Jun Azumi that Tokyo would take "decisive steps against speculative movement of excessive volatility." See more on Japan's finance minister.