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Bankia is proving a Costatrophe

The Euro has weakened against most of its major counterparts as debate continues to rage in Spain over how to deal with the nation’s debt and banking crisis.

The single currency is trading lower against the dollar, at its lowest levels since July 2010. It’s not fairing much better against the pound either, slipping ever lower against sterling. The main cause for the continually poor performance is the ongoing Euro crisis that is beginning to engulf more and more nations. Spain’s government has been forced to backtrack on its plans to use government debt instead of cash to bailout Bankia, the nation’s third largest bank.

Shares in Bankia, which were suspended on Friday as the government unveiled its largest ever recapitalisation plan, plunged 27% before recovering. The government has already pledged to pump up to €19billion into the troubled bank. The Spanish newspaper, El Mundo fanned fear by claiming that a further €30bn was required to rescue four other banks, CatalunyaCaixa, Novagalicia, Banco de Valencia. Speculation is rife over whether the Euro central bank will be forced to step in and help salvage the situation, but Rajoy denied this insisting that; “There will be no rescue of Spanish banks,”
Spain’s woes were increased further after today’s retail sales figures were at their lowest level since 2004. The figure slumped by 9.8% in April.

“There are bullets flying from every angle and confidence is incredibly low, and that looks set to remain the case,” said Kit Juckes, head of foreign-exchange research for Societe Generale SA. “Spain’s problems immediately replaced Greece. It’s just a matter of time before we head down to $1.20” per euro.

Many other investors agree with that prediction Brian Kim, a currency at Royal Bank of Scotland Group Plc said “We’re waiting to see what the ECB involvement is within recent talk of a Spanish bank bailout any of the euro movements we’re seeing now are not necessarily too much of a breakout given the degree of uncertainty that’s overhanging”.

Elsewhere the Australian dollar has strengthened slightly against the US dollar and the Japanese Yen. This is forecast to be short-lived however as Japan has signed an historic deal with the Chinese allowing its currency to be the only one apart from the US dollar that can trade directly with the ever growing Yuan.

Japanese Finance Minister Jun Azumi told reporters that trading under a new regime will start in Tokyo and Shanghai on 1 June, according to Reuters News agency.

“By conducting transactions without using the third country’s currency, it will bring merits of reducing transaction costs and lowering risks involved in settlements at financial institutions,” said Mr Azumi.
“That will contribute to improve convenience of the both countries’ currencies and reinvigorate the Tokyo market.”

The Pound to Euro exchange rate is currently trading at 1.251

The Pound to US Dollar exchange rate is currently trading at 1.569

The Euro to Australian Dollar exchange rate is currently trading at 1.273

The Euro to US Dollar exchange rate is currently trading at 1.254

The Euro to Pound exchange rate is currently trading at 0.798

The US Dollar to Japanese Yen exchange rate is currently trading at 79.560