The euro strengthened for a second day against the dollar as speculation increased Greece may seek to modify its austerity program following the June 17 election in a bid to remain in the monetary bloc.
The 17-nation currency pared its gain against the greenback after Spain’s credit rating was cut three steps by Moody’s Investors Service. The dollar fell versus a majority of its most-traded peers as U.S. retail sales fell in May for a second month, a sign the world’s largest economy is cooling. New Zealand’s dollar fell against the greenback as the Reserve Bank of New Zealand left its benchmark interest rate unchanged.
“There’s a little bit of short covering and a little bit of the weak economic data from the U.S.,” said Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage. “With the market being so short euros, there’s that propensity to push very marginally higher in the event that we don’t have any bad news out of Europe.” A short position is a bet that an asset will decline in value.
The euro advanced 0.4 percent to $1.2557 at 5 p.m. New York time, after gaining as much as 0.9 percent earlier. The shared currency appreciated 0.4 percent to 99.80 yen. The dollar fell 0.1 percent to 79.48 yen.
New Zealand’s central bank left interest rates at 2.5 percent and said the nation’s economic outlook has weakened since the March statement. All 16 economists in a Bloomberg News survey forecast the rate decision. The kiwi, as the South Pacific nation’s currency is known, dropped 0.5 percent to 77.30 U.S. cents after earlier advancing as much as 0.5 percent. It fell 0.7 percent to 61.38 yen.
The Dollar Index (DXY), which tracks the U.S. currency against those of six trading partners, fell 0.3 percent to 82.212.
Spain was downgraded to Baa3 from A3 by Moody’s, which cited the nation’s increased debt burden, weakening economy and limited access to capital markets. The yield on Spanish 10-year bonds reached a euro-era record of 6.83 percent yesterday.
Hedge funds and other large speculators increased their bets on a drop in the euro against the dollar to a record high of 214,418 last week, figures released June 8 by the Washington- based Commodity Futures Trading Commission showed.
The euro may drop to 88.51 yen within months, weaker than the record low set in October 2000, according to Sumitomo Mitsui Banking Corp., citing trading patterns.
The common currency’s fall in late May against the yen shows that the euro has completed a “head-and-shoulders” pattern and that it may drop to as low as 88.51 “in a few months,” Daisuke Uno, chief strategist at the unit of Sumitomo Mitsui Financial Group Inc. (8316), said yesterday in an interview.
A head-and-shoulders pattern occurs when prices form three consecutive peaks on a chart, with the middle being the highest. A downturn’s start is signaled when prices fall below a neckline serving as the pattern’s base.
The shared currency has fallen 5.1 percent against the dollar since April as crisis concern increased after Greece’s inconclusive May 6 election. The euro traded as high as $1.3487 this year, in February.
European leaders may consider relaxing Greece’s austerity program after election, the Financial Times edition reported without citing anyone.
Greek politician Alexis Tsipras said he expects the European Union will do all it can to keep the nation in the euro even if he wins elections and carries out his promise to repeal the austerity measures.
Greeks vote again after the May election failed to produce a coalition government. In the final polls before this week’s vote, one by Kapa SA showed New Democracy retaining its lead over Syriza, with the support of 26.1 percent of 1,012 Greeks surveyed. Syriza had 23.6 percent. That poll showed that Syriza gained 3.5 percentage points in a week, compared with less than a percentage point for New Democracy.
“Markets are very uncertain,” said Peter Rosenstreich, the chief currency analysts at Swissquote Bank SA. “When it becomes a coin toss, and there is the possibility of significant price action in either direction, traders are likely to look for a neutral position. It doesn’t take much to push the euro up in this market condition.”
Italy sold 6.5 billion euros of 364-day bills at an average yield of 3.972 percent, compared with 2.34 percent at an auction on May 11. Germany sold 10-year bonds and index-linked debt maturing in 2018.
The euro has fallen 3.3 percent in the past six months, the worst performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar is up 0.3 percent and yen lost 1.7 percent.
Sweden increased its nominal bond sale target to 59 billion kronor ($8.4 billion) from a March estimate of 50 billion kronor, the Swedish National Debt Office said today. The office raised next year’s target to 63 billion kronor from 53 billion kronor. Strategists at banks including Nordea Bank AB (NDA) and Swedbank AB (SWEDA) had predicted a limited to no increase in debt sales.
The krona strengthened 0.5 percent to 7.0343 per dollar.
The dollar erased its gain versus the yen after the U.S. Commerce Department reported a 0.2 percent decrease in retail sales in May, following a similar decline in April that was previously reported as a gain. Last month’s drop matched the median forecast of 79 economists surveyed by Bloomberg News.
The disappointing data add to bets the Federal Reserve may introduce further measures to stimulate the economy. The Dollar Index fell 14 percent from December 2008 through June 2011, when the Fed bought $2.3 trillion in bonds in two rounds of quantitative easing, or QE. The central bank is also replacing $400 billion of short-term Treasuries in its holdings with longer-term debt to keep borrowing costs down.
“This data supports the further easing case,” said Greg Anderson, a currency strategist at Citigroup Inc. in New York. “We’re thinking first off about Greece and then we’re thinking about what the Fed does next week, which presumably is highly Greece dependent. If that’s the case, you can’t buy the dollar too aggressively because you could go the other way on a QE announcement next week.”
To contact the editor responsible for this story: Dave Liedtka at Dliedtka@bloomberg.net