Reuters: US Dollar Report: FOREX-Euro slips as peripheral yields rise on Spain fears

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FOREX-Euro slips as peripheral yields rise on Spain fears Mar 21st 2012, 20:43 Wed Mar 21, 2012 4:43pm EDT * Spain's slow progress on finances sparks worries * European manufacturing data on Thursday in focus * Dollar surrenders gains against the yen By Gertrude Chavez-Dreyfuss NEW YORK, March 21 (Reuters) - The euro dropped from a two-week high against the dollar and a nearly five-month peak versus the yen on Wednesday, hurt by widening interest rate differentials between safe-haven German debt and peripheral bonds, suggesting renewed euro zone worries. Italian and Spanish debt prices took a beating on concerns about Spain's slow progress in boosting its finances. The wave of Spanish and Italian bond selling benefited German Bunds , whose yields slipped back below 2 percent for the first time this week. Yields on Spain's 10-year bonds rose to a one-month high of 5.40 percent. Benchmark Italian yields climbed to 5.0 percent, a one-week peak, which reflected some anxiety and undermined the euro. "Even though U.S. yields fell today, Bund yields fell further, so the dollar is getting a bit of traction against the euro on the yield story," said Richard Franulovich, senior currency strategist, at Westpac in New York. "There might be some safe-haven flows into Bunds because if you look at Spanish and Italian bonds, they got a spanking. We haven't seen that for quite some time." In late afternoon trading, the euro was down 0.1 percent at $1.32100. Talk of Germany cutting back spending "added to further pressure on the euro because of the risk it poses to euro zone growth," said Kathy Lien, director of FX research at GFT In Jersey City, New Jersey. Investors will now look to manufacturing data in Europe to be released on Thursday. They remain wary of another flare-up in the euro-zone debt crisis, with the Italian government set to clash with unions over employment law reforms.. "Tomorrow's PMIs will be important, as recent data has pointed to some stability in several European economies, and the PMI will help confirm this, which would be positive for the euro," said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto. Earlier, the euro had touched an almost two-week high of $1.32860 after Greece's lawmakers approved the country's second bailout deal, as expected. Analysts said the approval had been seen as a formality, but signs the Greek bailout was on track boosted the euro zone's common currency in early global trading. But after the euro failed to hold gains in the New York session, investors began to sell, sparking further selling as stop-loss orders were triggered. "The lack of follow-through on the upside in the euro precipitated a technical run through $1.3200, which then led to the execution of stop-loss orders below $1.3200," said Joseph Trevisani, chief market strategist at Worldwide Markets in Woodcliff Lake, New Jersey. Technical analysts were earlier forecasting the euro rally was likely to run out of steam around $1.33, just above the 61.8 percent retracement of its late February to mid-March fall. The euro also fell against both the Swiss franc and sterling. The euro was last at 1.20570 francs, little changed on the day, and at 83.26 pence, down 0.1 percent. The dollar, meanwhile, surrendered gains against the yen after data showed U.S. home resales unexpectedly fell in February and the supply of properties on the market rose, underscoring the many hurdles for a housing market recovery. The greenback rose as high 84.100 yen, just shy of a recent 11-month high. It last traded at 83.367, down 0.5 percent, but was up 8.3 percent so far this year. Rising U.S. yields and monetary easing from the Bank of Japan last month had pushed the dollar higher, particularly against the yen. "The latest shift in U.S. rates has put pressure on traditional funding currencies, and we have seen the yen weaken materially versus the dollar," said Jens Nordvig, global head of currency strategy at Nomura Securities in New York. The euro fell from a near five-month peak of 111.430 yen, after nearing resistance around the peak hit on Oct. 31, when Japanese authorities last intervened in the market. It was last at 110.120, down 0.5 percent. The Australian dollar fell 0.3 percent to US$1.0452 after earlier falling to a two-month low of US$1.0417, just above the 200-day simple moving average of US$1.0400. The 200-day exponential moving average lies at US$1.0375. Link this Share this Digg this Email Reprints

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