NEW YORK: The euro rallied on Monday, recovering from multi-month lows against the dollar and yen and a 1-1/2 year low against sterling in largely technical trading after it held key support levels ahead of a Spanish debt auction later this week.
An early rise in Spanish government bond yields raised fresh concerns about the euro zone economic outlook and sent the euro down broadly, but its $1.2293 trough against the dollar was far above near-term support at $1.2955.
That prompted traders who had been betting against the euro to buy and reduce losses. As the buying momentum accelerated, it fed on itself, prompting more buying that either pushed the euro higher or pared its losses in most cross-trading pairs.
But investors cautioned against reading too much into Monday's move, given the uncertainty about the ongoing European debt crisis and economic outlook for the euro zone.
"A further spike in Madrid borrowing costs would increase pressure on the European Central Bank to get involved to stem the tumult," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington. "The euro would be vulnerable to further losses if Madrid fails to put a halt to the steady erosion in market confidence in its ability to manage its massive load of debt."
In late afternoon New York trading, the euro last traded up 0.5 percent against the dollar at $1.3137, after climbing as high as $1.3147.
Earlier, it dropped to a two-month trough of $1.2993 and below reported options barriers at $1.30.
But it avoided stop-loss euro sell orders reported below $1.2970 and maintained near-term support at $1.2955, around the 61.8 percent retracement of the euro's climb from the January low to the February peak.
Spain's 10-year government bond yields rose above 6 percent for the first time this year as investors worried about the country's ability to contain its budget deficit, and the cost of insuring its debt hit a record high.
That prompted the early euro selloff against all major currencies. Yet even as it sold, some strategists were forecasting the rapid appearance of buyers below $1.30, saying the euro was unlikely to test the January 2012 low this week.
News that ratings agency Fitch is not currently considering any action on Italy, the euro zone's third-largest economy and one of key concern because of its debt load, also helped the euro cut losses. Fitch said Italy's budget measures are "credible" and consistent with a gradual reduction of its debt.
Investors will now focus on Spain's auction of two-year and 10-year bonds on Thursday after it sells short-dated bills on Tuesday. Any sign of 10-year yields heading closer to the 7 percent level that is regarded as unsustainable could prompt further euro weakness.
"We're also in the midst of a global slowdown and that's affecting the euro," said Sebastien Galy, senior currency strategist at Societe Generale in New York. He added that in a global slowdown, those affected are countries with huge fiscal deficits because that increases the pressure for more monetary easing.
SOLID US RETAIL SALES
The dollar fell against the yen, falling to 80.31 yen, its lowest since Feb. 29. It was last at 80.46 yen, down 0.5 percent, trimming some losses after the US Commerce Department reported that retail sales rose 0.8 percent in March, more than expected, despite high gasoline prices. .
"It's a clear sign that US consumer spending remains strong," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, noting that all the components of the retail sales data far exceeded market expectations.
"On balance I think it's the latest sign that the US economy is outpacing a lot of its major counterparts," he added.
The euro also fell against the yen to a two-month low of 104.61 and was last at 105.70 yen, down 0.1 percent. Against sterling, the euro fell to 82.05 pence, its lowest level since September 2010. But late in New York it had recovered to trade 0.2 percent higher at 82.65 pence.
Commodity currencies were under pressure as well, with the Australian dollar falling for a second straight trading day. It was last at US$1.0356, while the New Zealand dollar was down 0.1 percent at US$0.8206.
News over the weekend that China had doubled the yuan's daily trading band against the dollar to 1 percent had limited impact on major currencies. Some analysts said Beijing's decision could eventually be positive for risk sentiment, as Chinese authorities would not push ahead with such financial reforms if they were not confident of avoiding a hard economic landing.
Overall, the move was seen as unlikely to alter market expectations of gradual yuan appreciation of around 2 to 3 percent this year. The yuan weakened on the first day of trading after the wider band was adopted.
Comments
Comments are closed.