NEW YORK: The euro weakened on Thursday against the US dollar in a volatile session punctuated by concerns over Spain's banking sector and disappointing US economic data that at one point sent the common currency to a fresh 23-month low.
The euro also hit an 11-1/2-year low against the rallying Japanese yen.
A report by Dow Jones that said the International Monetary Fund was discussing a contingency plan for a rescue loan to bail out Spain's third largest bank sent a jolt of buying into the euro and briefly lifted it into positive territory against the greenback. The IMF said later, however, it is constantly discusses "different scenarios" in its member countries.
In an earlier briefing an IMF spokesman told reporters the fund was not drawing up financial assistance plans for Spain, nor had Madrid requested any funding.
Spanish bond yields remained near record highs on fears Spain would eventually have to ask for a bailout. The European Commission's top economic official, Olli Rehn, warned that the single currency area could disintegrate without stronger crisis-fighting mechanisms and tough fiscal discipline.
"The market took the euro up 35 pips on that report, but it didn't last long and just as quickly as it rose it came right back down," said Joe DeGeronimo, chief dealer at SMBC in New York
One positive factor that seemed to work for the euro was the expectation that Ireland would vote in favor of Europe's new fiscal pact, but investors quickly sold into rallies.
Ireland began casting ballots in the only popular vote on Europe's new fiscal treaty on Thursday, with opinion polls pointing to a 'yes' vote that could ease concerns about its funding prospects.
Prior to the Dow Jones report, which sparked a brief rally to a session high $1.2428, the euro was trading at a near two-year low of $1.2335. It has since settled down to trade off 0.02 percent at $1.2367.
The euro fell to 96.48 yen, its worst level against the Japanese currency since December 2000. It traded off 0.95 percent at 96.87 in afternoon activity, while the US dollar lost 1 percent to trade at a 3-1/2 month low of 78.31 yen. Japan's currency has benefited from safe-haven flows fiven Europe's troubles and the weak US economic data.
The euro zone common currency was on track for a loss of 6.6 percent in May against the US dollar, the worst monthly performance since September 2011. Against the yen, the euro is on track for an 8.3-percent drop, its worst performance in exactly two years. The dollar is poised for a monthly loss of 1.8 percent against the yen.
Sterling, after dropping to a four-month nadir of $1.5359 , is on track to lose about 5 percent against the greenback.
US JOBS REPORT AHEAD
A slew of bearish US data on the labor market, first-quarter economic growth and manufacturing in the US Midwest all pointed to a slowdown in the recovery. Private employers, according to ADP data, created fewer jobs than expected, and new claims for benefits rose, suggesting a modest labor market recovery was stalling.
"If we get through the New York day without too much damage in the markets, like stocks, I think it will be a quiet overnight until tomorrow's jobs report. Truly strong jobs and manufacturing reports are going to give the dollar a boost," he said.
Economists polled by Reuters expect US May nonfarm payrolls to have risen by 150,000 jobs, up from 115,000 in April.
"I think the fear is for a much weaker number. If we get a number below 100,000, that would probably sustain the negative momentum," said Vassili Serebriakov, currency strategist at Wells Fargo in New York.
"I'm not sure if it would necessarily accelerate it. But a number below 100,000 would be seen as the most significant sign of the US economy slowing."
The bearish US data and Europe's festering fiscal woes pushed benchmark 10-year US Treasury yields to record lows of 1.5326, according to Tradeweb.
The greenback was also the beneficiary of safe-haven flows. Against a basket of currencies it rose to its strongest level in 21 months, reaching 83.215 before slipping back to 83.007, just slightly negative on the day.
However, the index looks set to close above its 100-month average, at 81.823, for the first time in almost 10 years.
A break of the 100-month average has been a good indicator of a long-term trend change, having produced four successful signals in the past 30 years.
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