BLBG:Euro Falls Before Spanish Sale Amid Debt Crisis Concern
The euro fell against the dollar for the first time in three days as Spain prepared to auction notes today amid signs Europe’s debt crisis is blunting economic growth in the region.
The 17-nation currency snapped a two-day advance against the yen after a report showed euro-area services and manufacturing contracted for a fifth month in June. New Zealand’s dollar rose after a report showed the nation’s economy grew at the fastest pace in five years last quarter.
“As long as Spain’s debt problem stays with us, my bearish view on the euro won’t change,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp. (8711), a currency-margin company. “Whether Spain can resolve its debt problem has yet to become clear, so anxieties continue to prevail.”
The euro slid 0.4 percent to $1.2659 at 9:10 a.m. London time after rising as much as 0.5 percent yesterday to $1.2743. It reached $1.2748 on June 18, the most since May 22. The shared currency fell 0.2 percent to 100.84 yen, after gaining 1.6 percent over the previous two days. The dollar was little changed at 79.65 yen.
Spain is scheduled to auction as much as 2 billion euros of debt maturing 2014, 2015 and 2017 today. The nation sold 12- month bills at an average yield of 5.074 percent two days ago, a record high in data compiled by Bloomberg going back to 2004, in its first debt sale since becoming the fourth euro member to seek a bailout.
Spanish Yield
Spanish 10-year yields reached 7.29 percent on June 18, the most in the euro era and above the 7 percent level that pushed Greece, Ireland and Portugal to request rescue packages.
A composite index based on a survey of purchasing managers in services and manufacturing in the 17-nation euro area was stable at 46, the same reading as in May, London-based Markit Economics said today in an initial estimate. That’s the fifth reading in a row below the 50 level that separates contraction from expansion.
“Flash euro-zone PMI releases today will likely restrain the euro,” Mitul Kotecha, head of global currency strategy in Hong Kong at Credit Agricole Corporate & Investment Bank, wrote in a research note today before the data were released. “The data will put further pressure on the European Central Bank to cut interest rates.”
European finance ministers are set to meet in Luxembourg today to discuss the currency union’s financial woes.
Fed Policy
The ECB earlier this month held its benchmark interest rate at a record low of 1 percent, while President Mario Draghi said “a few” policy makers called for a cut. The central bank’s next rates decision is scheduled for July 5.
The euro is down from this year’s high of $1.3487 on Feb. 24 and has depreciated about 6.8 percent in the past 12 months, according to Bloomberg Correlation-Weighted Indexes that measure 10 developed-market currencies.
Demand for the dollar was limited today after the Federal Reserve said it stood ready to implement further stimulus after announcing an extension of its program to replace short-term bonds with longer-term debt.
The Fed said yesterday it will expand its so-called Operation Twist program, which seeks to lower borrowing costs by extending the average maturity of the securities in the central bank’s portfolio, by $267 billion through the end of the year. Central bank officials also cut their estimates for 2012 growth after last month’s slowdown in hiring and said there will be little progress on unemployment during the rest of the year.
‘Additional Steps’
The Fed Bank of Philadelphia’s general economic index was at zero this month, according to the median economist estimate in a Bloomberg survey before a report due today. The reading was minus 5.8 in May, the lowest since September and signaling contraction.
The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, rose 0.2 percent to 81.687.
“The slowdown in the U.S. economy is more than I have expected, and it’s damping people’s willingness to buy the dollar,” said FX Prime’s Ueda.
New Zealand’s dollar rose after a report showed gross domestic product increased 1.1 percent in the three months ended March 31 from the previous quarter, when it expanded a revised 0.4 percent, Statistics New Zealand said.
The so-called kiwi climbed 0.2 percent to 79.75 U.S. cents, after reaching 80.17 cents, the strongest level since May 4.
To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Keith Jenkins in London at kjenkins3@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
