Reuters: US Dollar Report: FOREX-Euro stung by Spain downgrade; yen eyes BOJ

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FOREX-Euro stung by Spain downgrade; yen eyes BOJ Apr 26th 2012, 23:09 Thu Apr 26, 2012 7:09pm EDT * Spain hit by two-notch downgrade by S&P * Euro sheds some 60 pips after Spanish downgrade * BOJ next in focus, size of expected easing in question By Ian Chua SYDNEY, April 27 (Reuters) - The euro suffered a drubbing early in Asia on Friday after Standard & Poor's hit Spain with a two-notch credit rating downgrade, while the yen could go either way depending on the scale of easing delivered by the Bank of Japan later. The euro skidded to $1.3179, from $1.3236 late in New York, pulling away from a 3-1/2 week high of $1.3264. This has put the single currency on track to end the week in the red. Against the yen, the single currency fell to 106.86 from New York's 107.15. Standard & Poor's cut its credit rating on Spain to BBB-plus from A and gave it a negative outlook, warning it expects the government's budget deficit to deteriorate even more than previously thought due to economic contraction. "The euro was hit by the wrath of the ratings agency at the end of the NY trading day," analysts at BNP Paribas wrote in a client note. S&P also affirmed its BBB-plus rating for Ireland but said its negative outlook meant there is a one-in-three chance it could cut the rating in 2012 or 2013. With the euro under renewed pressure, the dollar index popped up to 79.207, from a 3-1/2 week low of 78.823 plumbed Thursday. The greenback though was little changed on the Japanese currency at 81.07 yen versus 80.95 in New York. According to sources familiar with the Bank of Japan's thinking, the central bank is likely to boost asset purchases by up to 10 trillion yen ($123 billion) and may also extend the maturity of government bonds it targets to around three years. However, there is no consensus yet within the central bank on whether it should increase its 30 trillion yen asset-buying programme by the usual 5 trillion yen increment, or by double that amount - as it did in February - for greater market effect. Analysts said any bigger-than-expected asset-buying plan should cement the yen's status as a funding currency for carry trades, pushing it lower and lifting higher-yielding currencies such as the Australian dollar. Equally, a restrained move by the BOJ would likely see the yen turn higher once more. The Aussie last traded at $1.0360, having slipped from Thursday's session high of $1.0399 in sympathy with the euro's decline. Markets will also be keeping an eye on a batch of Japanese data including consumer inflation at 2330 GMT, industrial production and retail sales at 2350 GMT. Later in the day, Italy will sell up to 6.25 billion euros of bonds. The market is pinning its hopes on support from domestic banks, which has helped Italy push auctions through, even when spiralling concerns last November threatened to tip the country into a Greek-style debt crisis. "A poor auction will likely put EURUSD back under downward pressure," BNP Paribas analysts said. Link this Share this Digg this Email Reprints

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