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Euro Weakens Before Spain Bond Sales; N.Z. Dollar Falls

The euro fell against the yen, halting yesterday’s gain, before Spain sells bonds tomorrow with European leaders struggling to contain the region’s debt crisis.

Demand for the dollar was limited amid speculation the Federal Reserve will decide on further stimulus when it concludes a two-day meeting today. Twelve of 21 primary dealers who trade with the Fed expect some form of monetary easing. New Zealand’s dollar weakened against all of its 16 major peers after data showed the nation’s current-account deficit widened more than economists had estimated in the first quarter.

“Given that long-term Spanish yields are already above 7 percent, if rates rise further at the auction tomorrow, it may cast doubts over the country’s funding ability,” said Junichi Ishikawa, an analyst in Tokyo at IG Markets Securities Ltd. “That will probably spur some risk aversion, which will prompt some euro selling.”

The euro slid 0.2 percent to 100.01 yen as of 7:02 a.m. in London from yesterday, when it advanced 0.7 percent. The shared currency was little changed at $1.2679 from $1.2685 yesterday, when it climbed 0.9 percent. The yen strengthened 0.1 percent to 78.89 per dollar.

Spanish 10-year yields on June 18 touched 7.29 percent, the highest since euro was introduced in 1999. While yields eased yesterday, they remained above the 7 percent level that pushed Greece, Ireland and Portugal to seek rescue packages. The nation is scheduled to sell debt tomorrow maturing in 2014, 2015 and 2017.

Policies Endorsed

Spanish Prime Minister Mariano Rajoy said Group of 20 leaders endorsed his government’s economic policies. He spoke to reporters yesterday at the conclusion of the G-20 summit in Los Cabos, Mexico.

The euro is trading within a range of 98.55 and 100.93 versus the yen and may fall to 95.59 if it breaks below the lower level, Credit Suisse Group AG said in a note to clients yesterday, citing trading patterns.

A dip below the range would “pave the way for a selloff” taking it to an interim support of 97.05 before possibly falling further to 95.59, according to analysts including David Sneddon, Credit Suisse’s London-based head of technical analysis research. Support is an area on a chart where orders to buy may be clustered.

The euro touched 95.60 yen on June 1, the lowest level since 2000.

The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, traded 0.3 percent from the lowest in almost one month before the Fed meeting concludes.

‘Something Stimulatory’

The central bank will review new forecasts as it contends with continuing financial stress in Europe and a U.S. unemployment rate that has stayed above 8 percent for 40 consecutive months.

JPMorgan Chase & Co. and Jefferies Group Inc. predict policy makers will extend the Fed’s so-called Operation Twist. The $400 billion program, announced in September, involves selling short-maturity debt and buying longer-term bonds. The Fed instituted the program following two rounds of quantitative easing, or QE, in which it bought $2.3 trillion of debt to hold down borrowing costs.

“Any stimulus from the Fed is bearish for the U.S. dollar,” said Kurt Magnus, executive director of currency sales in Sydney at Nomura Holdings Inc., Japan’s biggest brokerage. “We’re expecting something stimulatory, whether or not it’s in the form of an extension of Twist, or a little bit of QE.”

The Dollar Index was at 81.391 from 81.400 yesterday, after touching 81.161 on June 18, the lowest since May 22.

Japanese Trade

The yen briefly weakened, before erasing losses, after Japan posted a wider trade deficit for May than predicted by any economist in a Bloomberg News survey.

Japan’s trade gap was 907.3 billion yen ($11.5 billion), in May, according to Finance Ministry data released today. The median forecast in the survey was for a 544.4 billion yen shortfall. Exports rose 10 percent from a year earlier, while imports climbed 9.3 percent.

New Zealand’s dollar declined after a government report today showed the country’s current-account deficit in the three months through March widened to 4.8 percent of gross domestic product, up from a revised 4.2 percent in the previous quarter.

The so-called kiwi fell 0.3 percent to 79.55 U.S. cents and dropped 0.4 percent to 62.76 yen.

To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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