Reuters: US Dollar Report: FOREX-Euro slides as peripheral yields rise on Spain woes

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FOREX-Euro slides as peripheral yields rise on Spain woes Mar 21st 2012, 19:15 Wed Mar 21, 2012 3:15pm EDT * Peripheral spreads widen as euro falls * Early gains came on Greek lawmakers' rubber-stamp of bailout * 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. German Bunds rose while Italian and Spanish debt 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 two percent for the first time this week. Yields on Spanish 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. "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 mid-afternoon trading, the euro was down 0.2 percent at $1.32035. Aside from widening peripheral spreads, Kathy Lien, director of FX research at GFT In Jersey City , also cited talk of Germany cutting back spending. She said the speculation "added to further pressure on the euro because of the risk it poses to euro zone growth." Investors will now look to manufacturing data in Europe 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 climbed to 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 and that sparked 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 the figure," 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 to session lows against both the Swiss franc and sterling as investors abandoned the common currency. The euro was last at 1.20565 francs, little changed in the day, and at 83.22 pence, down 0.2 percent. The U.S. 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 an 11-month high touched in recent days. It last traded at 83.400, down 0.4 percent. Rising U.S. yields and monetary easing from the Bank of Japan last month had pushed the dollar higher, particularly against the yen. 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 110.200, down 0.5 percent. During the Asian session, Japanese exporters were seen selling the dollar ahead of the end of their financial year on March 31. But market players said there had been demand to buy the greenback on dips. The Australian dollar fell 0.3 percent to US$1.0449 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 $1.0375. Link this Share this Digg this Email Reprints

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