LONDON—The euro wobbled in a tight range against the dollar in European trading Thursday and extended its record fall against the Australian dollar after Spain sold bonds at auction at a worryingly high cost.
The euro was recently trading at $1.2302 compared with $1.2284 late Wednesday in New York. The dollar was at ¥78.57 compared with ¥78.798, while the euro was at ¥96.66 compared with ¥96.77. The pound was trading at $1.5684 compared with $1.5653 late Wednesday in New York.
The dollar steadied against the yen after hitting a six-week low in Asian trade and dipping against a range of currencies after U.S. Federal Reserve Chairman Ben Bernanke said new action to support the U.S. economy was "certainly possible", fanning hopes that another round of quantitative easing might be around the corner.
The euro rose to as high as $1.2325 in early trade but then fell to as low as $1.2263 after Spain drew subdued levels of demand as it auctioned a range of bonds totaling €2.981 billion but at sharply higher yields. The common currency subsequently bounced back above $1.23 as the release of Spain's memorandum of understanding with its European Union partners reminded investors that the European Financial Stability Facility could yet step in to buy Spanish debt, if need be.
Spain hopes to complete its bank bailout agreement at a Friday conference call of euro-zone finance ministers but with benchmark 10-year Spanish bond yields hovering near an unsustainable 7%, there are growing concerns in some quarters of the market that Spain risks losing access to markets.
Geoffrey Yu, a currency strategist at UBS, UBSN.VX +0.67% cautioned that current low market volumes were distorting the picture and would likely continue over the next few weeks as London, the world's biggest foreign exchange market, hosted the 2012 Olympic Games. But he said he remained comfortable with a year-end target for the euro of $1.15.
The euro's weaker trend was clearer against commodity-linked currencies such as the New Zealand and Australian dollars, which both extended their recent gains against the single currency to record fresh euro-era highs.
Both were also strong against the dollar, with the Aussie dollar pushing beyond $1.04, as the mild optimism generated by Mr. Bernanke and by decent spate of U.S. company earnings surprises, boosted shares.
Elsewhere, the pound wobbled briefly as poor retail sales data due to the U.K.'s washout summer weather gave currency traders little reason to believe the country was set to pull out of a recession any time soon. Retail sales volume rose 0.1% in June from May, much slower than the previous month's 1.5% growth rate and much less than the 0.5% predicted by a Dow Jones Newswires poll of economists. But like the euro, sterling also steadied in quiet trade.
In Europe's emerging markets, the Turkish lira firmed slightly against the dollar after the Turkish central bank left its overnight lending rate unchanged at 11.5%. Some strategists had been expecting a cut.
By contrast, the South African rand was stronger against the buck during European trading hours with the market consensus expecting the South African Reserve Bank to keep the main policy rate on hold at 5.5% at 0900 ET.
The Wall Street Journal Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was trading at 72.022, compared with 71.81 late Wednesday in New York.
