FOREX-Euro down on Spain auction, Draghi and Fed minutes

Wed Apr 4, 2012 11:48am EDT

Related Topics

* ECB leaves rates unchanged; Draghi sees downside risks
    * Euro pressured after Spain auction disappoints
    * Dollar extends gains after Fed curbs QE speculation


    NEW YORK, April 4 (Reuters) - The euro fell to a three-week
low against the dollar on Wednesday after European Central Bank
President Mario Draghi said the euro zone economic outlook is
subject to downside risks relating to the debt crisis and
commodity prices. 	
    The euro was already under pressure after Spain's borrowing
costs jumped at a bond auction and on reduced expectations of
further monetary stimulus in the United States after Tuesday's
release of Federal Reserve meeting minutes. 	
    Draghi's comments came in a news conference after the ECB
announced it was holding interest rates at record lows, as
widely expected. 	
    The ECB president also told reporters that any talk of an
end to loose monetary policy is premature given the poor state
of the bloc's economy..	
    "It seems as though the European Central Bank will continue
to carry out its easing cycle in 2012 as the region continues to
face a threat for a prolonged recession," said David Song,
currency analyst at DailyFX. "Indeed, the ECB left the door open
to expand monetary policy further." 	
    The single currency dropped 0.8 percent on the day
against the dollar to $1.3127. At the trough of $1.3105, it was
the lowest since March 16.	
    "There are inflationary pressures coming from higher oil
prices, higher indirect taxes in the short term, but inflation
expectations are firmly anchored in the medium term," the ECB's
Draghi said.  	
    "Given the present conditions of output and unemployment,
which is at a historical high, any exit strategy talking for the
time being is premature."	
    	
    SPANISH AUCTION	
    Spain sold 2.6 billion euros of government bonds, toward the
lower end of its target range and at higher yields than at
previous auctions. Its borrowing costs had been expected to rise
given growing concerns about its public finances.
 	
    "The market focuses back on Europe after Spain's
disappointing bond auction," said Camilla Sutton, chief currency	
strategist at Scotia Capital. "A key theme is how strict
austerity and low growth can turn into a euro negative and
vicious cycle."	
    In contrast to the outlook for the euro zone, minutes
published by the Fed on Tuesday showed only two of the
policy-setting FOMC's 10 voting members saw the case for
additional monetary stimulus. The statement sparked a sell-off
in U.S. Treasuries, with the 10-year yield last
trading around 2.24 percent.	
    Technical analysts highlighted the euro's break below its
100-day simple moving average at $1.3155 as a bearish sign.	
    The euro will likely waver throughout the year near its
current levels against the dollar, although it might weaken a
few cents more until the currency bloc escapes a bout of mild
recession, a Reuters poll showed. 	
    The common currency also struggled against the
yen, falling more than 1 percent on the day to 107.88 yen, its
lowest since March 13. It was last at 108.45 yen.  	
    	
    AUSSIE STUMBLES	
    The U.S. currency rallied against the Australian dollar
, which dropped to a low of US$1.0238, its lowest since
Jan. 13, after Australia posted a surprise trade deficit,
fueling expectations its central bank would cut interest rates
in May. 	
    The Australian dollar broke through support at the 50
percent retracement of the November to February rally, leaving
the door open to a test of the 61.8 percent retracement of the
same rally. 	
    The yen regained ground against the dollar after coming
under heavy selling pressure following the Fed minutes and the
spike in U.S. Treasury yields. 	
    The greenback was last down 0.3 percent on the day at 82.59
yen, retreating from a session high of 82.93 yen.	
    Many market players have been betting on a weaker yen trend
since the Bank of Japan's unexpected easing of monetary policy
in February. Speculation that the Fed could tighten its own
policy faster than previously expected - raising the return for
holding dollars - have also weighed on the Japanese currency.	
    The dollar did trim losses against the yen on Wednesday
after data showed the U.S. private sector added more jobs than
expected in March.
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Comments (1)
Spain is still encountering hidden debt left by the socialist government.
Changing from a government with no concept of financial growth to one that does takes more than a few months. If the bond market drives them too far into austerity, the left will come back too quickly for Spain too survive.

Apr 04, 2012 12:15pm EDT  --  Report as abuse
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