By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch)—The U.S. dollar extended gains against the euro on Wednesday after a weak Spanish bond auction brought the spotlight back to Europe’s sovereign debt problems and as European Central Bank President Mario Draghi held his press conference.
However, the dollar lost ground against the Japanese yen global equity markets dropped, spurring demand for safe-haven currencies.
The ICE dollar index DXY +0.51% , a gauge of the greenback’s performance against a basket of six major currencies, rose to 79.774 from 79.410 late in North American trade Tuesday.
The euro EURUSD -0.73% fell to $1.3136, compared with $1.3231 Tuesday.
Draghi that inflation remains a risk to growth and all off the bank’s non-standard measures, including the liquidity operations that have stabilized the banking system, are temporary. See more on ECB’s Draghi.
Talk of an exit strategy from accommodative policy is premature, he said, disappointing any who may have hoped for more hawkish comments.
Earlier, ECB left its key lending rate unchanged at 1%, as was widely expected.
More concern is centered on the ECB’s outlook for its liquidity program, mainly long-term refinancing operations, that were credited with stabilized the European banking sector and lowering interest rates for peripheral countries. Lately rates have risen though, which brings back attention on the ECB’s outlook for how to keep open countries’ access to affordable financing.
Weighing on the euro, Spain’s first test of investor faith since unveiling its austerity budget last week, saw borrowing costs rise and demand weaken. Spanish and Italian 10-year yields rose sharply. Spanish, Italian yields surge
“Pressure continues to build on Spain, where the first bond sale since it released its budget was a notable disappointment and Spanish equities continued to be trounced,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman.
The dollar extended the prior session’s gains starting in Asian trading after Federal Reserve minutes release late Tuesday showed more asset purchases were unlikely. See story on dollar. Read about Fed meeting’s minutes
“While further QE [quantitative easing] is unlikely until June, and less likely overall than it was, the monetary policy outlook hasn’t changed much [with] near-zero rates until the economy recovers substantially, while further accommodation is possible if growth slows,” he said.
British pound, Japanese yen
The British pound GBPUSD -0.30% declined to $1.5867, from $1.5901, easing further after a British Chambers of Commerce report said the U.K., although growing, will need to provide more support to the private sector.
U.K. PMI data showed a activity in the dominant services sector accelerated unexpectedly in March, further confirming expectations the economy avoided a double-dip recession, economists said. U.K. PMI
Reflecting risk aversion, the dollar USDJPY -0.47% declined against the Japanese yen and bought ÂĄ82.38 compared with ÂĄ82.87 late Tuesday.
Among other regional currencies, the Australian dollar fell after the nation posted a surprise trade deficit. Read about Australia’s trade deficit
The aussie AUDUSD -0.51% declined to $1.0274 from $1.0305 just ahead of the data Wednesday morning and $1.0309 late Tuesday.
“While weather distorted, today’s trade data add to the view of an economy that is struggling at a sub-trend pace. Barring a major upside surprise for [first-quarter consumer price inflation] on April 24, we expect the Reserve Bank of Australia to cut the cash rate in May,” Royal Bank of Canada strategist Su-Lin Ong wrote in emailed comments after the data.
