MW: Euro turns down; focus turns to Spain from Greece
Relief after Greek election results fade fast
By Deborah Levine and Michael Kitchen, MarketWatch
NEW YORK (MarketWatch) — The euro turned down on Monday, giving up as initial positive reaction to indications a pro-bailout, pro-euro-zone government will preside in Greece faded into the background, to be replaced by larger worries over the region.
Yields on Spanish and Italian debt resumed their March higher, indicating worries that European officials may ease off on reforms if Greece’s outlook is more settled.
The euro EURUSD -0.76% turned down to $1.2609, after jumping over $1.27 in Asian trade, compared with $1.2646 in late North American trade Friday.
The dollar index DXY +0.35% , which tracks the greenback against six currencies, turned up to 81.848 from late Friday’s 81.584. The index lost 1.1% over the course of the previous week.
Against the Japanese yen , the European currency EURJPY -0.56% peeled back from a rise to ¥100.80, to ¥99.77, down 0.8% on the day.
The euro gained as Greece’s pro-bailout New Democracy party was projected as the winner of Sunday’s critical parliamentary elections, increasing the probability that the nation will remain in the euro zone. Read more on Greek election results.
However, U.S. stock market futures turned lower and most European stocks gave up a chunk of earlier gains as yields on Spanish 10-year bonds ES:10YR_ESP +4.76% shot above the psychologically important level of 7%. Those for Italy IT:10YR_ITA +2.69% also shot higher.
“The Greek election may have returned a best case scenario for the markets in so far as there may now be a conservative government with a workable majority, but clearly this is no panacea when it comes to either the problems of Greece or those of the rest of EMU,” said Jane Foley, senior currency strategist at Rabobank International.
Foley said the even the New Democracy party may have trouble pushing forward on austerity.
“There may be a path to be forged between appeasing the needs of the Greece people on one hand and maintaining the appearance of austerity and structural reform on the other,” Foley said in emailed comments.
Data from the Bank of Spain showed a rise in bad loans in April. “The fact that Spanish yields are back above 7% today is mostly the result of uncertainties connected with the combined debts of the Spanish sovereign, the regions and the nation’s banking sector,” said Foley.
Even after a large aid package for Spain’s banking sector was offered last week, markets shrugged it off as not enough to combat the potential spillover effect on the government. Analysts have said Europe will need to come up with a more comprehensive solution, including some form of banking union, possibly pan-European deposit insurance, and farther afield, some form of jointly-secured debt.
“A ‘positive’ election result has eased pressure on the EU authorities to make long-term radical changes to the European Union,” said Kathleen Brooks, research director at Forex.com. “The market is not reducing its pressure on the euro-zone authorities to come up with comprehensive solution to this crisis.”
Analysts will look for any signs of that kind of coordinated policy effort from the Group of 20 meeting that starts in Mexico on Monday. The group may also discuss raising the size of the International Monetary Fund bailout fund.
Against the yen, the dollar USDJPY +0.20% rose to ¥79.1 from ¥78.70.
The British pound GBPUSD -0.36% also gave up an earlier rally, falling 0.4% to $1.5653, after earlier topping the $1.57 level.
Deborah Levine is a MarketWatch reporter, based in New York.
Michael Kitchen is Asia editor for MarketWatch and is based in Los Angeles. Barbara Kollmeyer in Madrid contributed to this report.
