By Sara Sjolin and Michael Kitchen, MarketWatch
LONDON (MarketWatch) — News of a plan to add capital to struggling Spanish banks sent the euro higher on Monday, though some analysts remained cautious about the currency’s near-term outlook.
After slumping in recent weeks, the euro EURUSD -0.59% rose to $1.2545 from $1.2512 late Friday in North American trading.
The dollar index DXY -0.31% , which tracks the U.S. unit against six major currencies, fell to 82.244 from 82.439 late Friday.
The gain followed news that Spain would ask the European Union for as much as €100 billion ($125 billion) in loans to help its banking sector, easing jitters slightly over the ongoing euro-zone crisis. Read about Spain’s bailout.
Several analysts pointed to further risks on the horizon, including Greece’s upcoming election that could determine whether the nation remains in the euro zone.
“In the near term, [the euro] will remain buoyed, but any gains will be restricted to technical resistance around the $1.2690 level, where we expect sellers to emerge, especially given the uncertainty surrounding the outcome of Greek elections this weekend,” Crédit Agricole said in a note Monday.
The euro has lost 3% against the dollar this year due to the simmering sovereign-debt and financial problems. But it’s clawed back 1.5% this month after hitting its lowest level in almost two years.
Nomura research released Sunday pointed to capital flows as a source of worry, citing what it said was evidence of capital flight that could force the euro back down “in a dynamic resembling a traditional emerging-market currency crisis.”
The presence of such outflows, the Nomura analysts said, “opens the door to much more pronounced euro weakness, if it continues. Policy actions in the next three to four months will be crucial.”
The British pound GBPUSD +0.35% followed the euro higher, advancing to $1.5541 from late Friday’s $1.5464.
The dollar USDJPY -0.15% bought 79.56 Japanese yen, compared with ¥79.49 at the end of last week.
China was also on investors’ minds, after the country released a round of mixed economic data over the weekend. The data showed industrial production and inflation cooled off, while exports and imports exceeded analysts expectations. Chinese trade numbers up, but economy sags
“While the trade data were robust, weak industrial activity and low inflation give the PBoC [the People’s Bank of China] enough space to ease monetary policy, which should support the ‘green shoots’ that emerged in May,” analysts at Barclays wrote in a note. “This should help demand for commodities and commodity currencies, such as the Australian dollar and Norwegian krone in G-10.”
Sara Sjolin is a MarketWatch reporter, based in London.
Michael Kitchen is Asia editor for MarketWatch and is based in Los Angeles.
