Hungary’s forint falls to all-time low versus euro
By William L. Watts and Michael Kitchen, MarketWatch
NEW YORK (MarketWatch) — The U.S. dollar regained ground on Wednesday, with the euro coming under renewed pressure as worries about the euro-zone debt crisis were once again on the rise.
The dollar index DXY +0.79% , which tracks the U.S. unit against six major currencies, rose to 80.181, up from 79.591 late Tuesday in North America.
The euro EURUSD -1.04% slipped to $1.2930 from $1.3064 late Tuesday.
Spanish bond yields rose for a second day, with the 10-year yield ES:10YR_ESP +2.51% up 11 basis points at 5.35% after a report in Spain’s Expansion newspaper, citing unidentified sources, said the government was weighing applying to the International Monetary Fund and the European Union’s rescue fund for loans to finance a restructuring of the country’s banking sector.
Yields fall as bond prices rise.
The cost of insuring Spanish government debt against default via instruments known as credit default swaps, or CDS, rose.
The spread on five-year Spanish CDS widened to 437 basis points from 402 on Tuesday, according to data provider Markit.
That means it would now cost $437,000 annually to insure $10 million of Spanish debt against default for five years, a rise of $35,000 from Tuesday
Balancing that, Germany sold 4.1 billion euros ($5.3 billion) of 10-year bonds, or bunds, in a closely-watched auction that was deemed satisfactory at best by strategists. The sale on Wednesday saw bids exceed allotted supply 1.3 times, which was in line with the historic average. The yield fell to 1.93% from 1.98% in November’s auction, which was left technically undersubscribed, stirring market jitters.
“With sovereigns gradually returning to the market to issue, the true tests will begin for the euro zone and so far they haven’t exactly been passed with flying colors,” said Geoffrey Yu, strategist at UBS.
“The German bund auctions were better than previous ones but still considered as disappointing in some quarters,” while analysts said the European Central Bank was again forced to intervene to keep a lid on peripheral bond yields, according to Yu.
The U.S. dollar added to losses Tuesday after stronger-than-expected economic data around the globe helped move investors away from the safe haven of the greenback and into stocks. See report on Tuesday’s currency moves.
Forint sinks
Meanwhile, the Hungarian forint fell to its lowest level versus the euro since the 1999 launch of the shared currency.
The forint EURHUF +1.36% traded at more than 320 per euro and changed hands in recent action at 319.42 per euro, a fall of 1.1%.
The forint and other Hungarian assets have come under heavy pressure after the nation’s parliament passed a law last week limiting the independence of its central bank. The move drew objections from the European Central Bank and the European Union and raises doubts about the ability of Hungary to secure aid from the International Monetary Fund or Brussels, strategists said.
“The fundamentals have deteriorated in a major way in Hungary, and we do not believe that the authorities will manage to secure an IMF program any time soon,” said Benoit Anne, emerging markets strategist at Societe Generale. “This leaves the country highly vulnerable to contagion risks” from the euro-zone debt crisis, Anne noted.
Among other currency majors, the British pound GBPUSD -0.31% fell to $1.5612 from $1.5657 late Tuesday.
Versus the Japanese yen, the dollar USDJPY +0.08% traded at ÂĄ76.79, compared to ÂĄ76.68 Tuesday.
William L. Watts is a reporter for MarketWatch in Frankfurt.
Michael Kitchen is Asia editor for MarketWatch and is based in Los Angeles.
