Euro Gains for Second Day as Spain, France Auction Bonds; Aussie Weakens
The euro strengthened for a second day against the dollar and yen after Spain sold its maximum target of debt today and French yields dropped at an auction.
The 17-nation currency pared gains as stocks slipped. The euro rose yesterday when six central banks led by the Federal Reserve acted to lower the cost of borrowing dollars for banks. The Dollar Index fell today as a report showed U.S. manufacturing grew, damping demand for safer assets. Data yesterday showed U.S. companies’ hiring rose and pending home sales increased. Australia’s dollar fell after building approvals declined and consumer spending slowed.
“It shows something for the euro that it was able to hold on to its momentum from yesterday,” said John Doyle, a strategist in Washington at the currency-trading firm Tempus Consulting Inc. “We’ve had a short slew of positive data in the U.S.”
The euro appreciated 0.2 percent to $1.3468 at 11:02 a.m. in New York after surging 1 percent yesterday, the biggest gain since Nov. 11. It gained earlier today as much as 0.6 percent. The shared currency rose 0.3 percent to 104.65 yen and touched 105.06 yen, the strongest level since Nov. 15. The yen was little changed at 77.72 per dollar.
South Korea’s won was the best performer among the dollar’s 16 most-traded counterparts. It gained 1.5 percent to 1,126.10 per dollar.
The Standard & Poor’s Index (SPX) was down 0.2 percent after capping a three-day gain of 7.6 percent yesterday, the biggest since March 2009.
Spanish, French Sales
Spain sold 3.75 billion euros of bonds, the central bank said, meeting the maximum target. The average yield on the five- year notes was 5.544 percent, compared with 4.848 percent when similar-maturity securities were auctioned Nov. 3. France sold 1.57 billion euros of 10-year bonds at an average yield of 3.18 percent, down from 3.22 percent at the prior offering on Nov. 3.
The Fed said yesterday it had agreed with the central banks of Europe, Canada, Switzerland, the U.K. and Japan to reduce the premium banks pay to borrow dollars overnight by half a percentage point to 50 basis points. The so-called dollar swap lines will be extended by six months to Feb. 1, 2013.
The six central banks also agreed to create temporary bilateral swap programs so that funding can be provided in any of the currencies “should market conditions so warrant.” Those swap lines were also authorized through Feb. 1, 2013.
The three-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, fell for a second day, shrinking to 1.18 percentage points below the euro interbank offer rate. It touched 1.63 percentage points before the central banks’ announcement yesterday, the most expensive level on an intraday basis since October 2008.
‘Huge Strategic Reaction’
“The central bank move yesterday clearly had a huge strategic reaction in risk and risk assets and those currencies correlated with that,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce, by phone from London. “We’re now in a scenario where we’re reassessing as to where we go from here in terms of these longer-term structural dynamics which, of course, these events from yesterday have done nothing to ease.”
IntercontinentalExchange Inc.’s Dollar Index (DXY), which tracks the U.S. currency against those of six major U.S. trading partners, fell 0.2 percent to 78.274.
The dollar remained lower versus most major peers after the Institute for Supply Management’s factory index, a gauge of U.S. manufacturing, increased to 52.7 in November from 50.8 a month earlier. Fifty is the dividing line between growth and contraction in the Tempe, Arizona-based group’s gauge, and economists surveyed by Bloomberg News estimated the reading would rise to 51.8.
U.S. employers added 125,000 workers last month after hiring 80,000 in October, a separate survey showed before Labor Department data due tomorrow.
“The U.S. data has been a little bit more solid recently,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York. “We know there’s widespread weakness in many parts of the world, and that’s definitely a concern, but the one modest bright spot is the U.S. economy for the time being.”
The euro gained even after a report showed Europe’s manufacturing industry contracted in November as the region edged toward recession and global demand weakened.
A manufacturing gauge based on a survey of purchasing managers in the 17-nation euro region dropped to 46.4 from 47.1 in October, London-based Markit Economics said. That’s in line with an initial estimate published on Nov. 23. A reading below 50 indicates contraction.
The number of permits granted to build or renovate houses and apartments fell 10.7 percent in October from the previous month, when they dropped a revised 14.2 percent, the Bureau of Statistics said. Growth in retail sales slowed to 0.2 percent from 0.4 percent, another report showed.
The Australian currency weakened 0.6 percent to $1.0218, and fell 0.5 percent to 79.412 yen.
Brazil’s real rose for a fifth day, the longest winning streak since October, after the central bank cut its benchmark interest rate yesterday in an effort to prevent Europe’s spreading debt crisis from stunting economic growth. The central bank cut the interest rate by a half-percentage point to 11 percent. Policy makers said in a statement “moderate” rate cuts can mitigate the effect of a worsening global economy
The real rose 0.8 percent to 1.7934 versus the dollar.
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