BLBG:Euro Drops as Demand Falls at Spain Sale, ECB Keeps Rate at 1%
The euro weakened for a third day against the dollar after demand declined at a Spanish bond auction, adding to concern the region is struggling to overcome its sovereign debt crisis.
Europe’s shared currency fell to a three-week low against the yen as the European Central Bank kept its main refinancing rate at a record low 1 percent. The yen and dollar strengthened against all of their other major counterparts as stocks slid around the world, boosting demand for the relative safety of the Japanese and U.S. currencies. The Australian dollar fell to an 11-week low versus the greenback after the nation unexpectedly reported a trade deficit.
“The euro should continue to weaken,” Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London, said before the ECB rate decision. “The questions over the periphery continue to be very large,” he said, referring to Europe’s high debt and deficit nations.
The euro depreciated 0.6 percent to $1.3152 at 12:46 p.m. London time after dropping to $1.3141, the weakest since March 22. The shared currency dropped 1.2 percent to 108.33 yen. It earlier fell to 108.07, the lowest since March 13. The yen advanced 0.5 percent to 82.36 per dollar.
Spain sold 2.59 billion euros of bonds, less than its maximum target of 3.5 billion euros, the central bank said. Demand for the notes due in 2015 was 2.41 times the amount allotted, down from 4.96 when they were last sold in March.
Record Debt
The auction was the first since Budget Minister Cristobal Montoro presented the government’s spending plans on March 30 and said public debt will rise to a record 79.8 percent of gross domestic product even as the nation makes the deepest cuts in three decades.
Spanish 10-year bond yields rose as much as 26 basis points to a 12-week high of 5.71 percent. The Stoxx Europe 600 Index (SXXP) dropped 1.1 percent.
The ECB’s decision to leave the refinancing rate unchanged was forecast by all 57 economists in a Bloomberg News survey. ECB President Mario Draghi will hold a press conference at 2:30 p.m. Frankfurt time to explain the decision.
“What Draghi is going to tell us is that the ECB is still extremely concerned about prospects for the euro-area economy,” Paul Robinson, London-based global head of foreign-exchange research at Barclays Plc said on Bloomberg Television’s “The Pulse” with Maryam Nemazee. “Loose monetary policy is not likely to change any time soon, and that, to some extent contrasts with” the Federal Reserve.
Europe ‘Struggling’
The euro rose 1 percent against the dollar after the previous ECB policy meeting on March 8, when Draghi said recent economic surveys showed signs of stabilization. The ECB supplied more than 1 trillion euros into the euro-region banking system in two offerings of three-year loans in December and February.
“The European economy is struggling in comparison to the U.S.,” said Thomas Averill, managing director of Rochford Capital in Sydney. “There’s very little economic reason for the euro to appreciate against the U.S. dollar.”
The dollar rose against all of its 16 major counterparts except the yen as signs the U.S. economy is improving added to speculation the Federal Reserve will refrain from further measures to cap borrowing costs.
A report from ADP Employer Services today will show U.S. employment increased by 206,000 last month, according to a Bloomberg News survey. That compares with a gain of 216,000 in February, the biggest in two months.
The euro has declined 0.9 percent in the past week, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 0.5 percent.
Aussie Falls
Australia’s dollar dropped after the central bank said imports outpaced exports by A$480 million in February. The median estimate in a Bloomberg survey of economists was for a surplus of A$1.1 billion.
“The Australian dollar remains under downward pressure reflecting the ongoing underperformance of the Australian economy,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. Today’s data show “weakness in export growth,” he said.
The so-called Aussie slid 0.6 percent to $1.0272 after falling to $1.0244, the weakest since Jan. 13.
To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
