Reuters: US Dollar Report: FOREX-Euro hit by Spain auction, Fed minutes

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FOREX-Euro hit by Spain auction, Fed minutes Apr 4th 2012, 12:04 Wed Apr 4, 2012 8:04am EDT * Euro falls after Spain auction disappoints * Dollar extends gains after Fed curbs QE speculation * ECB leaves rates unchanged, news conference at 1230 GMT By Nia Williams LONDON, April 4 (Reuters) - The euro fell to its lowest in nearly two weeks versus the dollar on Wednesday as Spain's borrowing costs jumped at a bond auction and after Federal Reserve minutes reduced expectations of further monetary stimulus in the United States. After the European Central Bank held interest rates at record lows, as widely expected, markets focused on ECB president Mario Draghi's press conference due around 1230 GMT for clues to the future path of euro zone monetary policy. The shared currency dropped more than 0.6 percent on the day against the dollar to $1.31411 on trading platform EBS, its lowest level since March 22. The euro's losses helped the dollar index rise to one-week high of 79.745. "The latest leg down today was on some slight disappointment in the auction, and (peripheral) yield spreads are wider as a result," said Adam Cole, head of global FX strategy at RBC Capital Markets. "But the bigger picture decline in euro today is more about the rise in U.S. yields that came in the wake of the FOMC (Federal Open Market Committee) yesterday." Spain sold 2.6 billion euros of government bonds, towards the lower end of its target range and at higher yields than at previous auctions. Its borrowing costs had been expected to rise given growing concerns about its public finances. Some analysts said that, depending on the tone of Draghi's press conference, the euro could come under further pressure. Many expected Draghi to sound cautious on the region's economic outlook. In contrast, minutes published on Tuesday showed only two of the policy-setting FOMC's 10 voting members saw the case for additional monetary stimulus. The statement sparked a sell-off in U.S. Treasuries, with the 10-year yield last trading around 2.25 percent. "In the medium term our view remains that ECB policy is going to be kept extremely loose and euro/dollar will go lower," said Raghav Subbarao, currency strategist at Barclays. "Headline risks from Spain and Portugal remain in play and as long as they are out there monetary policy will need to be accommodative as fiscal policy clearly needs to be tightened." Technical analysts highlighted the euro's break below its 100-day moving average at $1.3155 as a bearish sign, with uptrend support from this year's lows seen as the next level to break around $1.3125. The euro will likely waver throughout the year near its current levels against the dollar, although it might weaken a few cents more until the currency bloc escapes a bout of mild recession, a Reuters poll showed. The common currency also struggled against the yen, falling more than 1 percent on the day to 108.075 yen on trading platform EBS, a three-week low. AUSSIE STUMBLES The U.S. currency rallied against the Australian dollar, which dropped to an 11-week low of US$1.0243 after Australia posted a surprise trade deficit, fuelling expectations its central bank would cut interest rates in May. It broke through support at $1.0261, the 50 percent retracement of the November to February rally from $0.9664 to $1.0857, leaving the door open to a test of $1.0120, the 61.8 percent retracement of the same rally. The yen regained ground against the dollar after coming under heavy selling pressure following the Fed minutes and the spike in U.S. Treasury yields. The greenback was last down 0.6 percent on the day at 82.32 yen, retreating from a session high of 82.94 yen. Many market players have been betting on a weaker yen trend since the Bank of Japan's unexpected easing of monetary policy in February. Speculation that the Fed could tighten its own policy faster than previously expected - raising the return for holding dollars - have also weighed on the Japanese currency. Link this Share this Digg this Email Reprints

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