Euro falls most in June vs. dollar
NEW YORK (MarketWatch) -- The dollar jumped on Thursday, pushing the euro down by the most in June, as lackluster U.S. economic data weighed on riskier assets more aligned with growth.
The euro fell further under $1.26 after an audit of Spanish banks showed the sector may need up to 62 billion euros in capital to cover losses in coming years.
The dollar index (DXY) , which measures the greenback's performance against a basket of six currencies, rose to 82.353, from 81.567 in late North American hours on Wednesday.
The euro (EURUSD) dropped to $1.2546, compared with $1.2673 Wednesday, when it briefly topped $1.27. It's the biggest one-day decline since May 30, according to Factset Research,
The dollar extended gains after the Federal Reserve Bank of Philadelphia said manufacturing activity in the bank's region fell to negative 16.6 in June, its lowest level since August 2011, from negative 5.8 in May. Read more on Philly Fed.
Separately, the National Association of Realtors said U.S. existing-home sales for May slowed while weekly U.S. jobless claims declined only slightly. Read more on existing home sales.
The dollar index was up earlier after a closely-watched gauge of manufacturing in China showed further contraction in June.
"A round of weak U.S. economic data triggered a wave of risk aversion in the currency market," said Kathy Lien, managing director of FX Strategy at BK Asset Management. "Even if the euro zone manages to cobble together a larger safety net for the region, demand is still a serious problem."
'Investors skeptical' about Europe
Spain continued to be in the spotlight after its government had to pay higher borrowing costs at a bond auction. The country's banking sector was also under the gun, as two external auditors said between about 52 billion and 62 billion euros would be needed. Read more on Spanish bank audits.
The audits were expected to show recapitalization needs of around €60 billion to €80 billion ($76 billion to $101 billion).
"Spain is going to need more assistance this year," said Larry Kantor, head of research at Barclays Capital.
The region's debt crisis will be among the topics discussed at a meeting of euro-zone finance ministers on Thursday.
"The situation increasingly requires bigger policy responses, and investors are now skeptical of seeing a solution," Kantor said. "As a result, they've pulled out of the area. That's dangerous because it tightens financial conditions," including reducing funds available to Spain and Italy.
Investors know that Europe needs much closer fiscal and financial integration, though "we don't expect to see that this year," he said. "But the market needs to see significant progress and a commitment."
Among other major currencies, the dollar (USDJPY) rose to 80.28 Japanese yen, compared with ¥79.47 late Wednesday.
The British pound (GBPUSD) fell to $1.5596 from $1.5703 Wednesday.
On Wednesday, the dollar gained after the U.S. Federal Reserve said it would extend its holdings of long-term government bonds using a program that isn't considered akin to printing money. Still, Fed Chairman Ben Bernanke left open that door, saying the central bank was ready to take more action if necessary. See story on Fed, Bernanke.