MW: Euro slips after Spanish election; dollar stuck in a rut vs. yen
The euro slipped against the dollar Monday as investors assessed the results of Spain’s general election, which saw the country’s ruling party lose its parliamentary majority.
The euro EURUSD, -0.0644% was buying $1.0865, compared with $1.0873 late Friday.
Results from Sunday’s election showed while Spain’s Popular Party won the most votes, it didn’t win enough seats to rule parliament on its own, putting the country on the path toward a minority or coalition government. The anti-austerity Podemos party and the liberal Ciudadanos picked up about a third of the seats.
“The last-minute rise in support for Podemos ... and the uninspiring performance of Ciudadanos confirm earlier predictions that forming a government will be very complicated. The process is likely to be protracted and given the new balance of forces in parliament, a new election should not be discarded,” said Teneo Holdings senior analyst Antonio Barroso in a note.
Negotiations to form a government may start this week, “although the holiday season means that a clear picture is unlikely to emerge before the new year,” he added.
The WSJ Dollar Index BUXX, +0.08% a measure of the dollar against a basket of major currencies, was up fractionally at 90.31. The ICE U.S. Dollar index DXY, +0.07% was flat at 98.72.
Meanwhile, the dollar traded rangebound against the yen, with gains capped after the Bank of Japan disappointed the market with its steps to complement its existing easing program.
The greenback USDJPY, +0.20% was at ÂĄ121.38 compared with ÂĄ121.26 late Friday in New York.
The dollar managed to stay above ÂĄ121.00 mark in a sign that dip buying was kicking in. But it failed to go up further with no fresh trading cues and many investors away ahead of the holiday season.
While the central bank tweaked the average remaining maturity of the Japanese government bonds it purchases, it left the overall target of annual asset purchases unchanged at around ÂĄ80 trillion ($650 billion). The additional purchases of exchange-traded equity funds, in addition to the portion it has purchased annually since late 2014, amount to only about 10% of the size of the current ETF buying.
The BOJ said it considers the steps announced Friday as part preparation for bold measures in the future. “But it seems the market has been confused and gained perspective that the BOJ announcement revealed the limitations of what it can do,” said Shinichiro Kadota, vice president of research at Barclays in Tokyo.
“Due to concerns and confusion about the BOJ policy, the dollar will likely remain top heavy at this moment,” said Kadota.
On Friday, some investors initially interpreted the BOJ measures as additional stimulus, prompting them to buy the dollar. But their initial enthusiasm turned into disappointment and they opted to offload the dollar as they found the steps were “supplementary” in nature.
