Euro Falls to One-Month Low on Spain’s Debt, ECB Views

The euro fell to the lowest in almost a month against the dollar after demand declined at a Spanish bond auction, adding to concern the region is struggling to overcome its sovereign-debt crisis.

The 17-nation currency weakened after the European Central Bank kept its benchmark rate at a record low and President Mario Draghi said the economic outlook remained subject to “downside risks.” The yen and dollar strengthened versus all their most-traded peers tracked by Bloomberg amid demand for the relative safety of the nations’ debt. Sterling rallied as U.K. services growth accelerated last month and house prices increased.

“The large selloff that you saw in euro relative to other currencies is the desire of a lot of the market to be short euro right now given that people are starting to turn back to the euro crisis driven by Spain,” said David Grad, a foreign-exchange strategist at Bank of America Corp. in New York. “The market focus is shifting and so there is downside risk for the euro.” A short position is a bet than an asset will decline in value.

The euro depreciated 0.7 percent to $1.3142 at 5 p.m. in New York after dropping to $1.3107, the weakest level since March 16. The shared currency fell 1.1 percent to 108.37 yen. It earlier declined to 107.91, the lowest since March 13. The yen advanced 0.4 percent to 82.46 per dollar.

Pound Advance

The pound rose against most of its major peers before the Bank of England meets tomorrow.

Sterling gained 0.6 percent to 82.71 pence per euro after a gauge of U.K. services activity based on a survey of purchasing managers increased to 55.3 from 53.8 in February. A separate report showed house prices climbed 2.2 percent in March from the previous month, Lloyds Banking Group Plc’s Halifax division said.

The euro has declined 0.8 percent in the past week, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar appreciated 0.6 percent, the yen has gained 0.6 percent and sterling is little changed.

The shared currency is poised to extend declines after falling below its 50- and 100-day moving averages, currently at $1.3218 and $1.3157, according to data compiled by Bloomberg.

Spain’s Debt

Spain sold 2.59 billion euros of bonds today, less than its maximum target of 3.5 billion euros, the central bank said. Demand for notes maturing in 2015 was 2.41 times the amount allotted, down from 4.96 at the previous sale of the maturity in March. It also sold securities due in 2016 and 2020.

Prime Minister Mariano Rajoy said Spain’s situation is one of “extreme difficulty” and signaled that his budget cuts are less painful than a bailout would be, as demand for the nation’s debt slumped at an auction.

“Governments are tightening the budgets and imposing austerity but they’re struggling to do so in a way that allows growth,” said Eric Viloria, senior currency strategist for Gain Capital Group LLC in New York. “We could test $1.30 in the next few days and if it does not find support there it would mean another big leg down.”

Spanish 10-year bond yields jumped as much as 26 basis points to a 12-week high of 5.71 percent, approaching the levels seen in December, before the European Central Bank said it would make unlimited three-year loans to banks. Some of the 1 trillion euros taken in the so-called LTROs has been recycled into high-yielding government debt, which initially helped shave as much 95 basis point off Spanish yields before they began to rise again in March.

ECB View

“The remaining tensions in euro area sovereign-debt markets are expected to damp economic momentum,” Draghi said at a press conference in Frankfurt. The ECB left its main refinancing rate at a record low 1 percent, as forecast by all 57 economists in a Bloomberg News survey.

Switzerland’s franc advanced to the strongest since Sept. 19 against the euro as sovereign debt-crisis concern boosted demand for the perceived safety of the Swiss currency.

The currency strengthened as much as 0.1 percent to 1.20313 per euro before trading at 1.20360. The Swiss National Bank set a limit of 1.20 francs per euro in September last year.

The dollar’s gains were supported as a report showed U.S. companies expanded payrolls in March, adding to speculation the Federal Reserve will refrain from further steps to cap borrowing costs. U.S. payrolls climbed by more than 200,000 in March for a fourth month, economists said before the Labor Department report on April 6.

Dollar Measure

The Dollar Index, which Intercontinental Exchange Inc. uses to track the currency against those of six major trading partners, rose 0.3 percent to 79.744. Treasury 10-year yields fell eight basis points, or 0.08 percentage point, to 2.22 percent and benchmark Japanese bonds traded at 1.03 percent.

Australia’s dollar slid after the central bank said imports outpaced exports by A$480 million in February. Economists forecast a surplus of A$1.1 billion, a Bloomberg survey showed.

“Australia came out with a second consecutive trade deficit last night, that’s going to hit it pretty hard,” said Kit Juckes, head of foreign-exchange research at Societe Generale SA, by phone from London.

The Aussie slid 0.6 percent to $1.0270 after falling to $1.0244, the weakest since Jan. 13. It fell 1 percent to 84.69 yen.

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