Euro Drops Against Major Peers Before Spain Debt Auctions

Top Forecasters See Euro Weakness Returning on Spain Budget Miss
Euro notes in denominations of fives and tens are arranged for a photograph in London. Photographer: Simon Dawson/Bloomberg

The euro fell to less than $1.30 for the first time in two months as Spanish bond yields touched a 2012 high after a minister called on the European Central Bank to do more to stem debt-market turmoil.

The 17-nation currency dropped for a second day against the yen and reached the lowest since 2010 versus the pound. The yen strengthened against all of its 16 most-traded counterparts. China’s yuan weakened as the central bank widened the currency’s trading band. Higher-yielding currencies trimmed losses against the dollar after U.S. retail sales rose in March and yields on Spanish government securities pared increases.

“There’s still a hesitation with respect to trading in European bond markets,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York. “The U.S. data was a little bit better than expected. It’s causing a minor risk-on rally.”

The euro fell 0.3 percent to $1.3040 at 9:59 a.m. in New York after dropping to $1.2995, the weakest since Feb. 16. The shared currency weakened 0.7 percent to 105.12 yen after declining 0.8 percent on April 13. The euro slipped 0.2 percent to 82.35 U.K. pence after reaching 82.10 pence, the lowest since September 2010. The yen rose 0.4 percent to 80.58 per dollar.

Brazil’s real rose as much as 0.4 percent to 1.8322 per dollar before trading at 1.8368, up 0.1 percent. New Zealand’s dollar, which dropped the most against the greenback among its 16 most-traded peers tracked by Bloomberg, trimmed a 0.7 percent decline to 0.4 percent, trading at 81.92 U.S. cents.

Spanish Debt

The euro weakened against 13 of its 16 major counterparts after the cost of insuring Spain’s debt climbed to a record and Jaime Garcia-Legaz, the nation’s deputy economy minister, said in an interview on April 13 that the ECB should “step up purchases of bonds.”

Spanish 10-year bond yields jumped as much as 18 basis points, or 0.18 percentage point, to 6.16 percent, the highest level since Dec. 1, before trading at 6.02 percent. Five-year credit-default swaps linked to Spanish bonds jumped to an all-time high, CMA data show. Spain will sell 12- and 18-month bills tomorrow, followed by auctions of debt due in October 2014 and January 2022 on April 19.

Prime Minister Mariano Rajoy is struggling to convince investors he can get Spain’s finances under control after last month refusing to meet deficit targets set by the European Commission and the previous government.

The euro lost 6 percent over the past year, according to Bloomberg Correlation Weighted Indexes, the worst performer among the 10 developed-nation currencies tracked by the gauges. The yen gained 6.6 percent, and the dollar rose 4.7 percent.

‘Still Lower’

“The euro is under a bit of pressure with the periphery in focus, particularly as we have some Spanish issuance this week,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “The path of least resistance is still lower, and we’re probably looking for euro-yen to lead the way.”

China’s yuan fell by the most in almost three months against the dollar as the central bank doubled the daily trading band, reflecting declines in emerging-market currencies.

Effective today the People’s Bank of China is allowing 1 percent moves from its daily fixing, after keeping the limit at 0.5 percent since May 2007.

“The yuan is weaker as investors are again worried about Europe and a bit on China’s growth,” said Tommy Ong, Hong Kong-based senior vice president of treasury and markets at DBS Bank (Hong Kong). “It’s an opportune time for China to widen the band when appreciation expectations aren’t so strong.”

China’s currency declined 0.2 percent to 6.315 per dollar after dropping as much as 0.35 percent, the most since Jan 20.

Dollar Index

The Dollar Index rose for a second day as U.S. data showed retail sales increased last month, damping speculation the Federal Reserve will add to monetary easing.

Retail sales rose 0.8 percent, following a revised 1 percent advance in February, Commerce Department figures showed today in Washington. The median forecast of 81 economists surveyed by Bloomberg News called for a rise of 0.3 percent. Eleven of 13 categories showed increases.

Four members of the Federal Open Market Committee judged that monetary policy should be tightened from 2015, while two preferred 2016, according to a Jan. 25 statement from the Fed. The central bank bought $2.3 trillion of bonds from 2008 to 2011 in two rounds of quantitative easing.

The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, advanced 0.1 percent to 79.945.

Key Level

The euro may fall as low as $1.2805 after breaking below a key level of support today, according to Credit Suisse AG.

The currency is poised to weaken to the 78.6 percent Fibonacci retracement of its rally in the first quarter after declining through the so-called head-and-shoulders neckline at $1.3030, Steve Miley, director of technical analysis in London, said in a telephone interview.

Support refers to an area where buy orders may be clustered. A head and shoulders is formed when a currency makes three consecutive peaks, with the middle being the highest. A neckline is drawn across the base of the three peaks. Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low.

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