By FXEmpire.com

The euro fell to the lowest price since January, falling below 98 yen in Tokyo trading Thursday, hit by a barrage of selling amid growing worries that the European debt crisis is spreading and at the EU is losing control. Conflicting reports from ECB, EU and Spanish officials have markets on edge. Also the unknown outcome of Greek elections continues to plague the euro

Reflecting demand for the yen as a safe-haven currency, the dollar also lost ground against the Japanese currency, falling below 79 yen for the first time here in 3-1/2 months.

After dipping below 97.50 yen, the euro traded at 97.75-76 yen, down from 98.80-82 yen at the same time Wednesday.

Europe’s shared currency briefly dropped below 1.2360 for the first time in over two years before moving to 1.2403-2406, down from 1.2452.

The dollar was at 78.80-81 yen, down from 79.34-35 yen.

The euro nose dived in overnight European and US trading following a news report Thursday that the European Central Bank has rejected the Spanish government’s plan to recapitalize troubled major bank Bankia by indirectly tapping ECB funds, according to brokers.

Carrying over their sluggish tone, the euro and the dollar stayed weak against the yen in Tokyo trading. However, the European currency drew some buybacks against the yen in the afternoon, which in turn propped up the dollar versus the yen.

Due to the Spanish fiscal problem and uncertainties over the Greek political situation, the euro is expected to remain under selling pressure for now.

The ECB today stated that they are working on a contingency plan to bailout Spain. Spain also denied that the IMF had been contacted to discuss a bailout. IMF sources responded that they are always looking and calculating possible scenarios. Spanish leaders just seem to have a problem using the word bailout and are trying to find a creative method to tap into EU or ECB funds as demonstrated in their plan to bail out Spanish banks with their own money and then use the notes, as security or to sell to the ECB. A bailout is a bailout no matter how you word it.

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Originally posted here