Euro held back by Spain's woes
The euro eased against the dollar and hovered nearly a record low versus the Australian dollar on Friday, and was seen on shaky ground due to worries about Spain's fiscal woes and as investors hunt for higher yields.
The euro zone's sovereign debt crisis
Besides investor jitters over the euro zone's sovereign debt crisis, the euro has taken a hit this month afterwards the European Central Bank lowered the deposit rate, which acts as the floor for euro zone money market rates, to zero.
Also, the fact that two-year bond yields have dipped into negative territory recently in Germany and the Netherlands, two euro zone countries in relatively good fiscal health, has fanned talk about the opportunity of a fresh investor shift out of euro zone assets.
Negative yields on such euro zone assets could entice investors who are bearish on the euro's outlook to shift money elsewhere, market players say.
The ECB deposit rate cut
The ECB deposit rate cut and subsequent drop in money-market rates has as well stirred talk of euro-funded carry trades, in which investors effectively borrow low-yielding currencies to invest in higher-yielding currencies and assets.
Still, economic conditions do not seem to favor the carry trade as much as they did around 2005 to 2007, when the yen was the funding currency of choice and the global economy enjoyed a period of stable growth, said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.