Euro Pares Early Losses Amid U.S. Data, Spanish Auction
The euro pared its loss versus the dollar Tuesday after a report showed U.S. consumer confidence fell more than expected this month, after the shared currency was pressured after a weak sale of short-term Spanish government debt.
The Japanese yen also turned up after Japan’s lower house of parliament passed a consumption tax bill.
The euro EURUSD -0.31% declined to $1.2481, off its lows of $1.2454 and from $1.2501 in North American trading late Monday. The shared currency gave up a modest gain after Spain sold 3.08 billion euros ($3.85 billion) of 3- and 6-month treasury bills.
The dollar index DXY +0.11% , which measures the U.S. unit against a basket of six major currencies, pared gains to 82.489 from 82.461 Monday.
The Conference Board’s consumer-confidence index fell to 62 in June — the lowest level since January — from a revised 64.4 in May.
“With a significant slowdown in job growth, contraction in consumer spending and Europe’s troubles continuing to make the headlines, it is no surprise that Americans have grown more pessimistic,” said Kathy Lien, managing director of FX strategy at BK Asset Management.
Still. a weak bond auction by Spain kept the euro under pressure. The average yield on 3-month bills jumped to 2.36% from 0.85% in a May auction, while the 6-month yield rose to 3.24% from 1.74%.
The country’s bond yields have been rising sharply lately, raising worries about how long Spain can finance itself in the public market before needing to ask for a bailout from its neighbors, Market Watch reported.
Spain sold more debt than planned, ”but it had to pay up,” said Kathleen Brooks, research director at Forex.com. “This is unsustainable. Although there are buyers when Spain’s debt becomes cheap enough, the higher yields could lead the Spanish authorities to decide it’s cheaper to go down the bailout route.“
EU summit
Strategists said the weaker tone reflected low expectations that a summit of European Union leaders convening Thursday and Friday will effectively address the euro zone’s sovereign-debt crisis.
The talks “are unlikely to address subjects such as common euro bonds or a more flexible use of both temporary and permanent rescue funds, as leaders have opposing opinions on these issues, which was further underlined in a speech by [German Chancellor Angela] Merkel on Monday,” said Richard Falkenhall, currency strategist at SEB in Stockholm.
“While expectations regarding the forthcoming summit are probably low based on previous experience, risks suggest a disappointing outcome. Consequently, this week’s meeting is likely to reinforce negative pressure on the common currency,” he said, in a research note.
Cyprus late Monday became the fifth euro-zone country to seek financial aid from its partners in the currency bloc. The request was widely anticipated after the country’s banking sector suffered sharp losses tied largely to its heavy exposure to Greek government debt.
