BLBG:Euro Declines Against Major Peers Before Spanish Auctions
The euro declined to a one-month low against the dollar before Spain auctions bills and bonds amid concern Europe’s debt crisis will continue.
The 17-nation currency slid to its weakest versus the British pound since September 2010 after the cost of protecting Spain’s debt from nonpayment climbed to a record. China’s yuan retreated after the central bank doubled the so-called trading band of the currency. The Australian dollar fell for a second day as Asian stocks extended a global rout, reducing demand for higher-yielding assets.
“The euro does look like it’s vulnerable to breaking down a lot further in the short term,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp. (WBC), Australia’s second-largest lender. “If Spain’s yields continue to rise, then they’re going to get to a point where they may well need some form of assistance, as Greece did.”
The euro fell 0.4 percent to $1.3023 at 12:48 p.m. in Tokyo, after touching $1.3009, the lowest since March 15. It lost 0.4 percent to 105.36 yen. The single currency dropped as much as 0.4 percent to 82.21 U.K. pence, the least since September 2010. The dollar was little changed at 80.88 yen. Australia’s currency slid 0.5 percent to $1.0320.
The MSCI Asia Pacific Index of shares retreated 0.8 percent after the MSCI All-Country World Index (MXWD) slid 1.1 percent on April 13. The Chicago Board Options Exchange Volatility Index, known as the VIX (VIX), jumped 14 percent to 19.55 the same day, the biggest advance since March 6.
Spain’s Auctions
Spain will sell 12-month and 18-month bills tomorrow, followed by April 19 auctions of debt due in 2014 and 2022. Yields (GSPG10YR) on the nation’s 10-year notes soared as much as 18 basis points to 6 percent on April 13, edging toward the 7 percent level that pushed Greece, Ireland and Portugal into rescues.
Klaas Knot, a member of the European Central Bank governing council, said on April 13 that he doesn’t see a “good reason” for the ECB to resume government bond purchases. “I think there has been an overreaction to the unfortunate communication surrounding Spain,” he said in Amsterdam.
Jaime Garcia-Legaz, Spain’s deputy economy minister, said in an interview on April 13 that the ECB should “step up purchases of bonds.”
Five-year credit-default swaps linked to Spain’s bonds jumped to 502.5 basis points at the end of last week, the highest on record going back to October 2004, according to data from CME Group Inc.’s CMA. The swap premiums rise when investors’ perception of creditworthiness deteriorates.
China’s Yuan
Investors’ worries over Spain’s fiscal health may keep the euro “restrained” from climbing back up toward the top of its recent range of $1.30 to $1.35, Mitul Kotecha, head of global foreign-exchange strategy in Hong Kong at Credit Agricole CIB, wrote in an e-mailed note today. The shared currency may see support around $1.2974, he wrote, a level last seen on Feb. 16. Support refers to a level where buy orders may be grouped.
The yuan weakened 0.2 percent to 6.3133 per dollar after the People’s Bank of China said on April 14 that the currency can move as much as 1 percent against the dollar from a so- called daily fixing rate, compared with the previous limit of 0.5 percent.
“The yuan is weaker as investors are again worried about Europe and a bit on China’s growth,” said Tommy Ong, the Hong Kong-based senior vice president of treasury and markets at DBS Bank (Hong Kong). “It’s an opportune time for China to widen the band when appreciation expectations aren’t so strong. That won’t induce any massive speculative bets on its currency.”
U.S. Economy
The Dollar Index was within 0.1 percent of a one-month high before U.S. data forecast to show retail sales increased last month, damping speculation the Federal Reserve will add to monetary easing.
Four members of the Federal Open Market Committee judged that monetary policy should be tightened from 2015, while two preferred 2016, according to a Jan. 25 statement from the Fed. The central bank bought $2.3 trillion of bonds from 2008 to 2011 in two rounds of quantitative easing.
“Any revisions from the six doves who at the January FOMC meeting only forecast interest rates being increased from 2015 and 2016 will further help reduce fears the Fed will engage in a third round of quantitative easing,” Mansoor Mohi-uddin, head of foreign-exchange strategy in Singapore at UBS AG, wrote in an e-mailed note on April 14. “We continue to see the Fed refraining from renewed money printing this year.”
Retail sales rose 0.3 percent in March after a 1.1 percent gain the prior month, according to the median estimate of economists surveyed by Bloomberg News. The Commerce Department will release the figure today.
IntercontinentalExchange Inc.’s Dollar Index (DXY), which tracks the greenback against the currencies of six major U.S. trading partners, advanced 0.3 percent to 80.113 after reaching 80.177 on April 5, the highest since March 16.
To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.
