Forexpros – The U.S. dollar rallied against its major counterparts Wednesday, climbing to a near two-year high against the euro, as fears over the deepening debt crisis in the euro zone sparked a flight to the safe haven of the greenback..
During U.S. afternoon trade, the dollar was trading close to a 22-month high against the euro, with EUR/USD plummeting 0.94% to hit 1.2386.
The greenback strengthened broadly amid concerns over the situation in Spain, where rising bond yields, the growing costs of bank rescues and a recession hit economy fuelled fears that Madrid will be forced to seek an international bailout.
The yield on Spanish 10-year bonds climbed to 6.7% earlier Wednesday, approaching the critical 7% threshold that preceded bailouts in Greece, Ireland and Portugal.
Investor sentiment briefly found support earlier after the European Commission said that stricken euro zone banks could be recapitalized directly through the region’s permanent bailout fund.
In its report on euro zone economic strategy, the Commission also supported the idea of “joint debt issuance” or euro bonds, an idea which has met strong opposition from Germany and said the euro zone should move towards the idea of a full banking union.
Meanwhile, concerns over the outcome of Greek elections mounted after an opinion poll showed anti-austerity party Syriza in the lead ahead of the June 17 vote, fuelling concerns that the country will reject the terms of its bailout agreement and be forced out of the euro area.
The greenback was also sharply higher against the pound, with GBP/USD down 0.91% to hit 1.5498.
The pound was little changed earlier after data in the U.K. showed that net lending to individuals ticked higher in April, rising by GBP1.4 billion, slightly above expectations for a GBP1.2 billion increase.
A separate report showed that U.K. mortgage approvals also edged higher last month.
Elsewhere, the greenback slumped to a three-month low against the traditional safe haven yen, with USD/JPY dropping 0.70% to hit 78.93, but posted strong gains against the Swiss franc, with USD/CHF surging 0.87% to hit 0.9689.
The yen found support earlier after the Bank of Japan signaled that it is likely achieve its 1% inflation target without further monetary easing, but did not rule out fresh stimulus measures if the crisis in the euro zone pressures the economy.
The greenback was hovering close to multi-month highs against its Canadian, Australian and New Zealand counterparts, with USD/CAD advancing 0.60% to hit 1.0284, AUD/USD falling 1.11% to hit 0.9739 and NZD/USD losing 0.97% to hit 0.7553.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.58%, to trade at 82.94.
In the U.S., the National Association of Realtors said earlier that its pending home sales index tumbled by 5.5% in April, missing expectations for a modest 0.1% decline.
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