Euro Gains as Spain’s Borrowing Costs Decline; Yen Drops

The euro approached a 10-month high against the dollar after Spain’s borrowing costs fell at a 4.5 billion-euro ($6 billion) sale of bonds, underscoring increased confidence in European debt markets.

The shared currency rose versus all of its 16 major peers, while the yen slid to the weakest since 2010 against the dollar as Nikkei newspaper said the Bank of Japan is preparing to ease policy next week. The Swiss franc fell to the lowest versus the euro since the nation’s central bank imposed an exchange-rate cap in September 2011. Mexico’s peso advanced as economic data beat forecasts in the U.S., the nation’s biggest trade partner.

“We’re in a real grinding risk-on environment,” Dan Dorrow, head of research in Stamford, Connecticut, at Faros Trading LLC, said in a telephone interview. “The tail risks in the euro zone seem to be mitigated because bond sales are doing well for them. There’s more confidence in the market.”

The euro gained 0.7 percent to $1.3376 at 5 p.m. New York time. It touched $1.3404 on Jan. 14, the strongest level since Feb. 29. The euro rose 2.4 percent to 120.21 yen and touched

120.61, the highest since May 4, 2011. Japan’s currency dropped as much as 2 percent to 90.13 per dollar, the weakest since June 23, 2010, before trading at 89.88, down 1.7 percent.

Implied volatility climbed for a third day, reaching the highest in more than four months. JPMorgan Chase & Co.’s G7 Volatility Index, based on three-month options on Group of Seven nations’ currencies, touched 8.97 percent, the most since Aug. 31, exceeding its 200-day moving average of 8.74 percent. It fell to 7.06 on Dec. 18, the lowest since August 2007.

Franc Weakens

Switzerland’s currency slid against most major peers as speculation Europe’s debt crisis is easing sapped demand for haven assets. The franc weakened as much as 1 percent to 1.2490 per euro before trading at 1.2476, down 0.9 percent. The Swiss National Bank capped the currency at 1.20 per euro after it surged to 1.008 per euro in August 2011.

“People are going back into risk assets,” Eimear Daly, a currency-market analyst at Monex Europe Ltd. in London, said in an interview on Bloomberg Television’s “The Pulse” with Guy Johnson. “People were so concerned about risk and were holding the Swiss franc as a highly liquid asset; now the fear has abated.”

Peso Gains

The Mexican peso climbed to a 10-month high versus the dollar after U.S. housing starts rose 12.1 percent last month, more than forecast, to a 954,000 annual rate, the most since June 2008. Initial claims for unemployment benefits fell last week to 335,000, the lowest level since January 2008, the government also reported.

The peso gained 0.5 percent to 12.5556 per dollar, the strongest since March 14, before trading at 12.5867.

Scandinavian currencies rose versus the greenback as investors sought riskier assets. Sweden’s krona added 0.2 percent to 6.4926 to the greenback, and the Danish krone gained

0.7 percent to 5.5792.

Stocks rose, with the Standard & Poor’s 500 Index advancing

0.6 percent.

Australia’s dollar slid versus most major counterparts after a report showed employers in the country unexpectedly cut payrolls last month, adding to concern the domestic economy is slowing. Employment fell by 5,500 in December, compared with economist estimates for a 4,000-job increase.

The Aussie lost 0.3 percent to $1.0546. It climbed as much as 1.7 percent to 95.02 yen, the highest since August 2008.

Spanish Bonds

The euro strengthened as Spain sold 2.409 billion euros of

3.75 percent 2015 notes at an average yield of 2.713 percent, down from 3.358 percent at the previous sale in December.

The shared currency rose 2.5 percent over the past three months in a basket of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar lost 0.1 percent, and the yen slid 13 percent in the worst performance.

The yen dropped today, erasing a two-day rally before the Bank of Japan reviews its 1 percent inflation goal at a Jan. 21-22 meeting. Prime Minister Shinzo Abe has called for the target to be doubled as he works to spur economic growth.

BOJ and government officials reached basic agreement on a joint statement calling for a 2 percent inflation target and additional funds for purchasing assets, Nikkei reported without attribution.

“The market is waiting to see what measures are introduced next week,” said Antje Praefcke, a senior currency strategist in Frankfurt at Commerzbank AG. “We think that they have to deliver at their meeting.”

Yen Outlook

The yen will depreciate to 95 per dollar in the next six months, Praefcke predicted. It last traded at that level in August 2009, according to data compiled by Bloomberg.

The Japanese currency has found resistance this week at the

87.80-per-dollar level, which implies it now may continue weakening, Cilline Bain, a London-based technical analyst at Credit Suisse Group AG, wrote today in a client note. It might continue to decline through a support level at 89.67 and then to

90.84, Bain said, which would be its weakest since June 2010.

Resistance refers to an area on a chart where sell orders may be gathered, and support is where there may be buy orders.