The euro fell against most of its major counterparts after Spanish bond yields surged and Fitch Ratings said the nation won’t meet budget-deficit goals, adding to concern Europe’s debt crisis is worsening.
The 17-nation currency fluctuated against the dollar, after weakening for a fourth day, as Spain’s 10-year bond yields reached a euro-era record. New Zealand’s dollar and the Mexican peso rose as stocks advanced amid increased demand for higher- yielding assets. The yen weakened versus most peers after the International Monetary Fund said it was overvalued.
“The euro has been very volatile,” said John Doyle, director of markets in Washington at currency-trading firm Tempus Consulting Inc. “We’re seeing the euro-dollar cross consolidate down near these levels ahead of the election in Greece this weekend. Italy and the Italian bonds are going to start coming into focus, which will push the euro lower.”
The euro fell as much as 0.3 percent before trading at $1.2503 at 5 p.m. in New York. It fell 0.4 percent to 80.31 pence. The shared currency rose 0.3 percent to 99.43 yen after dropping as much as 0.4 percent. The Japanese currency added 0.1 percent to 79.53 against the dollar.
The implied volatility for one-month euro-dollar options, which indicates expected swings in the underlying currencies, reached 13.3 percent, the highest since Jan. 3. The JPMorgan G7 Volatility Index, a measure of volatility among the Group of Seven nations’ currencies, rose 0.03 percentage point to 11.2 percent.
The New Zealand dollar strengthened 1.1 percent to 77.72 U.S. cents and the peso gained 0.8 percent to 13.9767 against the greenback.
The Standard & Poor’s 500 Index (SPX) added 1.2 percent and oil, Mexico’s largest export, rose 0.9 percent to $83.47 a barrel.
The yield on 10-year Spanish debt touched 6.83 percent, a euro-era record. Similar-maturity Italian bond yields rose 14 basis points, or 0.14 percentage point, to 6.17 percent, after reaching as high as 6.30 percent.
Fitch Managing Director Ed Parker said Spanish Prime Minister Mariano Rajoy will miss budget-deficit targets this year “by a substantial margin.” The nation asked for 100 billion euros ($125 billion) of aid for its banks on June 9.
The European Commission forecasts that Spain will post deficits of 6.4 percent of gross domestic product this year and 6.3 percent in 2013 even after unveiling 45 billion euros of spending cuts and tax increases. Rajoy’s aim is a deficit of 5.3 percent of GDP.
Fitch also cut its rating on 18 Spanish banks, citing concern about further loan deterioration. The company cut Spain’s long-term credit rating to BBB on June 7, two levels from junk status.
“It’ll take a while to digest the Spanish news, especially as some of the details of that package are still to be specified,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “We have the looming Greek elections on Sunday, which are seen as a huge element of uncertainty.”
Greece is scheduled to hold elections on June 17 after a previous vote last month failed to produce a viable governing majority.
Japan’s currency strengthened 8.1 percent in the past 12 months, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar rose 8.8 percent, while the euro weakened 6.6 percent.
Japan should consider additional monetary stimulus, including buying longer-maturity government bonds and private securities, the IMF said in a report today.
“The exchange rate has appreciated over the past year partly because of safe-haven capital inflows, and our analysis suggests that the yen is moderately overvalued from a medium- term perspective,” the IMF said. Intervention can be used to counter volatile currency movements, David Lipton, the fund’s first deputy managing director, said in Tokyo.
The BOJ, which starts a two-day policy meeting on June 14, refrained from adding to monetary stimulus last month after expanding its asset-purchase program in April. Japanese Finance Minister Jun Azumi earlier this month pledged to take “decisive” action on currencies after the yen climbed to 77.66 per dollar, the strongest since February.
The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, lost 0.2 percent to 82.374.
The gauge may decline to a one-month low after it briefly dropped to its 25-day moving average yesterday, according to Gaitame.com Research Institute Ltd., a unit of Japan’s largest currency-margin company.
A decline below the average will signal the start of a correction, with initial support at 80.49, said Takuya Kawabata, a researcher at Gaitame.com in Tokyo. That’s the 61.8 percent retracement of its advance from a May 1 low to a June 1 high, he said, referring to Fibonacci analysis. Support refers to an area where buy orders may be clustered.
To contact the editor responsible for this story: Dave Liedtka at Dliedtka@bloomberg.net