BLBG: Euro Snaps Three-Day Drop Versus Dollar After Spain Auction; Franc Jumps
The dollar dropped against the majority of its most-traded counterparts as U.S. economic data showed a quickening recovery and European funding stress eased, damping demand for the safety of the U.S. currency.
The euro rallied from an 11-month low against the dollar after Spain sold more than its maximum target at a debt auction and a report showed European manufacturing and service industries contracted less this month than economists forecast. The Swiss franc advanced after the central bank refrained from introducing additional measures to weaken the currency. The Brazilian real and the Australian dollar strengthened on improved demand for higher-returning assets.
“We got some positive data in the U.S., so that should be beneficial to risk sentiment,” said Brian Kim, a currency strategist in Stamford, Connecticut, at Royal Bank of Scotland Group Plc. “We’ve seen a little better data and auctions weren’t bad. It’s a modest re-engagement.”
The dollar weakened 0.5 percent to $1.3042 per euro at 9:26 a.m. in New York after reaching $1.2946 yesterday, the strongest level since Jan. 11. The greenback fell 0.4 percent to 77.77 yen. The European currency rose 0.1 percent to 101.44 yen.
Brazil’s real strengthened 1.3 percent to 1.8554 per dollar and the Aussie gained 0.8 percent to 99.86 U.S. cents.
Dollar Gains
The dollar has gained 1.8 percent against nine developed- nation counterparts this year, according to Bloomberg Correlation-Weighted Indexes. The euro has dropped 0.7 percent and the yen strengthened 5 percent.
The euro rallied after the currency’s 14-day relative strength index against the dollar fell to 29 yesterday, below the 30-level that some traders see as a sign a currency may be poised to reverse direction.
“A little bit of less-bad news and technical factors are pushing the euro higher,” said Geoffrey Yu, a currency strategist at UBS AG in London.
Spain sold 6.03 billion euros ($7.9 billion) of bonds today, compared with the maximum target of 3.5 billion euros the Treasury set for the auction. The yield on the security due in April 2021, which acts as the 10-year benchmark, was 5.545 percent, compared with 5.433 percent when it was last auctioned on Oct. 20. The nation also sold debt due in 2016 and 2020.
European Economy
The euro also gained after London-based Markit Economics said its euro-area composite index based on a survey of purchasing managers in both services and manufacturing industries rose to 47.9 from 47 in November. Economists forecast a drop to 46.5, according to a Bloomberg News survey. A reading below 50 indicates contraction.
The franc gained the most in eight weeks against the euro after Switzerland’s central bank left its limit on the currency unchanged, resisting pressure from exporters to further curb its strength as officials take time to assess deflation risks.
The Swiss National Bank kept the franc’s minimum exchange rate at 1.20 per euro, in line with the forecasts of nine out of 13 economists in a Bloomberg News survey. The central bank also maintained its benchmark interest rate at zero.
“There had been a growing sense that the SNB may well decide not to lift the ceiling, in part because of the problematic euro,” said Michael Derks, a market strategist at FXPro Financial Services Ltd. in London. The franc is unlikely to strengthen further because “the dollar is the preferred safe-haven currency at present.”
Franc Rise
The franc appreciated 0.9 percent to 1.2261 per euro, the biggest gain since Oct. 20. The currency rose 1.4 percent to 94.02 centimes per dollar.
Gains in the euro were capped today as speculation European leaders aren’t doing enough to resolve the debt crisis damped demand for the region’s currency.
“The situation in Europe is a worry on the financial side as well as the economic side,” said Derek Mumford, a Sydney- based director at Rochford Capital, a currency-risk management firm. “The U.S. dollar is still the currency to go to as far as a safe haven.”
The Federal Reserve Bank of New York’s general economic index rose to 9.5, from 0.6 in November. Economists projected the gauge would rise to 3, based on the median of 55 forecasts in a Bloomberg News survey. Readings higher than zero signal expansion among companies in the so-called Empire State Index, which covers New York, northern New Jersey and southern Connecticut.
A separate report showed that the number of applications for unemployment benefits dropped last week to 366,000, the lowest level in three years, showing the U.S. labor market is healing.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the U.S. currency against those of six trading partners, dropped 0.5 percent to 80.154. Yesterday it touched 80.730, the highest since Jan. 12.
To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Paul Dobson in London at pdobson2@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
