FOREX-Euro tumbles broadly as Fitch downgrades Spain

* Euro on track for biggest monthly fall since Jan 2009

* Fitch cuts Spain’s credit rating; outlook stable

* US consumer spending flat, dims risk appetite
(Adds reference to decline vs U.S. dollar in second
paragraph)

By Wanfeng Zhou

NEW YORK, May 28 (BestGrowthStock) – The euro fell (Read more about the trembling euro. ) across the board
on Friday after Fitch Ratings downgraded Spain’s credit rating,
rekindling concerns about a sovereign debt crisis in the euro
zone.

The euro was on track for a hefty 7.7 percent decline
against the U.S. dollar in May, in what would be the sixth
consecutive monthly fall and the biggest percentage drop since
January 2009.

Fitch cut Spain’s credit rating by one notch to AA-plus,
saying the country’s economic recovery will be “more muted”
than the government forecast due to its austerity measures. The
outlook on the new rating is stable. For details, see
[ID:nWNA2365]

“This should serve as a reminder that while the news stream
out of Europe was generally quiet this week, the potential and
risk is for more bad news to emerge from time to time and roil
markets,” said Win Thin, senior currency strategist at Brown
Brothers Harriman in New York.

“We are still negative on the euro. We think this is going
to be a multiyear bear trend for the euro,” he added.

In late New York trading, the euro was at $1.2271 (EUR=: ),
down 0.8 percent, after dipping as low as $1.2265, according to
electronic trading platform EBS.

Analysts said a key support level is $1.2135, the 50
percent Fibonacci retracement of the 2000-08 advance, just
above the recent four-year low of $1.2143. Charts further show
a monthly close below $1.2135 would favor more weakness, with
analysts seeing the next downside support at $1.1640, a low hit
in November 2005.

Against the yen, the euro was down 0.9 percent at 111.56
(EURJPY=R: ), after hitting an intraday low of 111.35 on EBS.

The dollar (JPY=: ) slipped 0.2 percent to 90.89 yen, while
the dollar index (Read more about the global trade. ) (.DXY: ), which measures the greenback’s
performance against a basket of currencies, was up 0.7 percent
at 86.751.

The dollar and yen gained as U.S. stocks (Read more about the stock market today. ) fell and data
showing U.S. consumer spending unexpectedly stalled in April
weighed on risk appetite. See wrap-up [ID:nN28167458].

“U.S. data today is not really that good for risk trades,”
said Vassili Serebriakov, senior currency strategist at Wells
Fargo in New York. “So we have seen equities lower.”

800 POUND GORILLA

Analysts said the downgrade of Spain was largely expected,
though the timing caught the market by surprise.

“We see multiple downgrades ahead for Spain,” BBH’s Thin
said. “Indeed, Spain is the 800-pound gorilla in the room.
Greece and Portugal are small countries, but Spain is about
five times their size with regards to GDP.”

Spain’s head of Treasury said the country’s sovereign debt
rating was still high despite the Fitch downgrade.
[ID:nMDT009070]

A $1 trillion safety net set up by European officials
earlier this month to ward off the adverse effects from
Greece’s debt problems and the announcements of new austerity
measures from Spain and Portugal have failed to brake the
euro’s decline.

Analysts said concerns about the euro zone’s debt troubles
remain entrenched.

Samarjit Shankar, managing director of global FX strategy
at BNY Mellon in Boston, said there has been a lot of
short-term borrowing by European governments in the past two
years with an average maturity of less than two years.

As a result, refinancing will be a big risk. “That’s going
to be a constant test as far as market sentiment is concerned,”
he said.

Investment Analysis

(Additional reporting by Gertrude Chavez-Dreyfuss and Nick
Olivari; Editing by Dan Grebler)

FOREX-Euro tumbles broadly as Fitch downgrades Spain