Forexpros – The pound extended losses against the U.S. dollar on Monday, as fears that Spain is on the way to becoming the next euro zone member to require a full bailout saw investors shun riskier assets in favor of the relative safety of the greenback.
GBP/USD hit 1.5486 during U.S. morning trade, the pair’s lowest since July 13; the pair subsequently consolidated at 1.5503, shedding 0.75%.
Cable was likely to find support at 1.5412, the low of July 13 and resistance at 1.5623, the session high.
The yield on Spanish 10-year bonds was hovering close to 7.50% on Monday, above the 7% threshold widely considered unsustainable if a country is to remain solvent, amid growing fears that Spain will need a full bailout after the state of Murcia followed Valencia in requesting financial aid from Madrid over the weekend.
The spike in borrowing costs came despite euro zone finance ministers approving a package of as much as EUR100 billion to bailout Spain’s banks on Friday.
Earlier Monday, Spain’s Economy Minister Luis de Guindos denied that Madrid will need a full-scale bailout.
Market sentiment found some support after the International Monetary Fund said it was to due start talks with Greece on Tuesday, in the hope of getting the country’s economic reform program back on schedule.
The announcement came after German media reports suggested that the IMF would no longer take part in providing financial aid for Greece, fuelling fears that the country would eventually exit the euro zone.
Sterling was trading within striking distance of a three-and-a-half year high against the euro, with EUR/GBP easing up 0.22% to 0.7800, off a session low of 0.7760.
Neither the U.K nor the U.S. were to release any significant economic indicators on Monday, so markets looked set to remain focused on developments in the euro zone.
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