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FOREX-Euro retreats broadly on worries over Spain
April 16, 2012 / 3:40 PM / 6 years ago

FOREX-Euro retreats broadly on worries over Spain

* Euro falls to 2-month low vs dollar, yen
    * Stops cited below $1.2970, tech support at $1.2955
    * Spanish bonds in focus, yields jump above 6 percent
    * China yuan band widening having minimal impact

    By Gertrude Chavez-Dreyfuss	
    NEW YORK, April 16 (Reuters) - The euro hit a two-month low
against the dollar and yen and a 1-1/2-year trough versus
sterling on Monday as a rise the yield on Spain's government
bonds signaled fresh worries about the country's fragile
economic state. 	
    Spain's 10-year government bond yields rose above 6 percent
for the first time this year as investors worried that about the
country's ablity to contain its budget deficit, and the cost of
insuring its debt hit a record high. 	
    Commodities-linked currencies such as the New Zealand and
Australian dollars slipped, while the yen rose to a 1-1/2-month
high against the U.S. dollar. Stronger-than-expected U.S.
retail sales for March, however, helped the dollar trim some of
its losses against the Japanese currency.	
    Spanish stocks and banking shares came under
pressure over the worries on Spain's debt load and as the
effects of the European Central Bank's 1 trillion euro cash
injection waned. 	
    "The price action suggests relative unease with what's
happening in Spain. If you notice, the euro has moved in lock
step with Spanish yields," said Vassili Serebriakov, senior
currency strategist, at Wells Fargo in New York.	
    In midday New York trading, the euro dropped to a
two-month trough of $1.2993 and below reported options barriers
at $1.30. The euro last changed hands at $1.3066, down 0.1
    Traders cited selling by Asian investors before reported
demand from sovereign investors helped the euro pare losses. The
euro in late morning trading pared losses on demand from
corporates at the 11 a.m. EDT fixing in London.	
    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 also focus on Spain's auction of two-year and
10-year bonds on Thursday after selling 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
    Stop-loss euro sell orders were reported below $1.2970, but
near-term support was seen around $1.2955, the 61.8 percent
retracement of the euro's climb from a low around $1.2624 in
January to this year's high of $1.3487. 	
    Even so, some strategists said the rapid appearance of
buyers below $1.30 meant the euro was unlikely to test the
January 2012 low this week. 	
    In the options market, demand to protect against further
euro weakness increased as one-month risk-reversals
, an indication of investors' expectations for a
currency to rise or fall, worsened from last week.
    The rapid erosion in investor confidence has put the
spotlight on the ECB. Many market players expect policymakers to
revive purchases in the secondary market of bonds of southern
European countries such as Spain to stem rising yields, while
some are hoping for a fresh infusion of low-rate funding.	
    The dollar fell against the yen, falling to 80.31
yen, its lowest since Feb. 29. It was last at 80.40 yen, down
0.6 percent, trimming losses after the U.S. Commerce Department
reported that retail sales rose 0.8 percent in March, more than
expected, despite high gasoline prices..	
    Noting that all the components of the retail sales data "far
exceeded market expectations, Omer Esiner, chief market analyst,
at Commonwealth Foreign Exchange in Washington, said, "I think
it's a clear sign that U.S. consumer spending remains strong.	
    "On balance I think it's the latest sign that the U.S.
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 105.08 yen, down 0.6 percent.
Against sterling, the euro fell to 82.10 pence, its
lowest level since September 2010; by midday, it was 0.1 percent
lower at 82.45 pence.	
    Commodity currencies were under pressure as well with the
Australian dollar falling for a second straight trading day and
was last at US$1.0350, while the New Zealand dollar
 was down 0.3 percent at US$0.8193. 	
    Oil and metal prices, in addition to suffering from worries
about Spain, were also hit by signs of slowing demand from
    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
    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.

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