Euro Drops Before ECB as Aussie Jumps on China

Bank of Japan Governor Masaaki Shirakawa
Masaaki Shirakawa, governor of the Bank of Japan. Photographer: Haruyoshi Yamaguchi/Bloomberg

The euro fell for a second day versus the yen and the dollar as Spanish borrowing costs climbed at a debt sale and amid speculation the European Central Bank will cut borrowing costs at a policy meeting today.

The Australian dollar advanced after China cut benchmark interest rates for the second time in a month. The pound erased a decline against the dollar as the Bank of England said it would extend its asset-purchase program. The yen strengthened against all but one of its 16 major peers after the Bank of Japan raised its economic evaluation of all regions for the first time in more than two years.

“The ECB didn’t signal it will cut rates this month, but given the situation has deteriorated substantially, I wouldn’t be surprised if it does,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “Lower rates will reinforce the euro’s position as a funding currency of choice. It’s going to be negative for the euro.”

The shared currency fell 0.4 percent to 99.64 yen at 12:14 p.m. London time after losing 0.5 percent yesterday. It traded 0.2 percent weaker at $1.2508. The dollar declined 0.3 percent to 79.67 yen.

The pound was little changed at $1.5589 after dropping as much as 0.2 percent. Austrialia’s dollar jumped 0.3 percent to $1.0302.

Spain sold 3 billion euros of bonds, the Bank of Spain said, meeting the maximum target for the sale. The Treasury sold its 10-year benchmark bond at an average yield of 6.43 percent, compared with 6.044 percent when the securities were last sold on June 7.

The ECB will lower its main refinancing rate by a quarter-percentage point from a record low of 1 percent, according to the median estimate of 64 analysts in a Bloomberg News survey. Five economists predict a reduction to 0.5 percent, while 10 forecast no change.

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