NEW YORK: The euro fell to its lowest in more than a week against the dollar and yen on Monday as a weak German business sentiment report and uncertainty about debt-plagued Spain added to concerns about the euro zone's slumping economy.
The drop in German business sentiment in September to its lowest since early 2010 raised worries that Germany, the largest euro zone economy, is succumbing to a downturn despite the European Central Bank's recently announced bond-buying plan.
Spain is also adding to the euro zone's pain. Spanish government bond yields rose on signs Madrid is making slow progress toward asking for the international bailout that markets are anticipating. Italian yields also rose.
Many market participants also believe the euro is poised for a pullback after a sharp rally in recent weeks that took the common currency to a four-month high against the dollar at $1.3169 on Sept. 17.
Data on Friday from the US derivatives watchdog CFTC showed speculators' net euro short positions shrank to their lowest since November, having fallen to just above one-third of the record peak reached in June.
"We seem to have reached a top in the euro. Things are still problematic in the euro zone," said Matthew Lifson, senior trader and analyst at Cambridge Mercantile Group in Princeton, New Jersey.
The euro hit a session low of $1.2889, its lowest since Sept. 13. It last traded at $1.2921, down 0.5 percent.
Initial support is seen at $1.2905, the 23.6 percent retracement of the July to September rally, followed by its 200-day moving average, which comes in around $1.2828.
Against the yen, the euro last traded at 100.54 yen , down 0.8 percent. It dropped to 100.33, a more than one-week low.
The Munich-based Ifo think tank said its business climate index, based on a monthly survey of some 7,000 firms, fell to 101.4 in September from 102.3 in August. A Reuters poll of 45 economists had forecast a slight rise to 102.5.
In the last few weeks, the euro has benefited from the dollar's weakness following the Federal Reserve's announcement of another round of monetary stimulus to boost the US economy.
That rally in the euro seemed to have run out of steam.
"The initial investor enthusiasm following ... the Fed QE3 (quantitative easing) announcement has begun to wane as the more intractable problems of the euro zone sovereign debt crisis return to the front burner," said Samarjit Shankar, managing director for global strategy at BNY Mellon in Boston.
SPANISH BUDGET
Madrid is expected to present its draft budget plan for 2013 this week and announce new structural reforms, while the results of stress tests on the wobbly Spanish banking sector are also due. These could set the stage for a full-scale bailout.
However, Economy Minister Luis de Guindos said on Saturday Spain will not rush to seek external aid to finance its debt, and EU officials said they did not expect Prime Minister Mariano Rajoy to seek an assistance program before a regional election in his native Galicia on Oct. 21.
Adding to pressure for Spain is the risk of a downgrade of its sovereign debt rating to junk status by ratings agency Moody's, which some expect this week, as well as a 27.5 billion euro refinancing hump at the end of next month.
Further weighing on the euro was a possible delay in the release of an EU/IMF report on whether Greece's debt is manageable. That report, now expected to be released until after Nov. 6, was originally expected next month.
The dollar also fell against the yen, trading at 77.86 yen , down 0.4 percent.
Risk aversion firmly favored the yen but Japan might intervene in the market should the yen gain further, traders said. The Bank of Japan's easing last week is seen as paving the way for such a move.
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