The euro fell, snapping yesterday’s gain, as Spain prepares to auction bonds tomorrow with European leaders struggling to contain the region’s debt crisis.
Demand for the dollar was limited amid speculation the Federal Reserve will consider further monetary stimulus when it concludes a two-day meeting today. Twelve of 21 primary dealers who trade with the Fed expect some form of added stimulus. The New Zealand dollar weakened after data showed the nation’s current-account deficit widened more than economists had estimated in the first quarter.
“Given that long-term Spanish yields are already above 7 percent, if rates rise further at the auction tomorrow, it may cast doubts over the country’s funding ability,” said Junichi Ishikawa, an analyst in Tokyo at IG Markets Securities Ltd. “That will probably spur some risk aversion, which will prompt some euro selling.”
The euro slid 0.1 percent to $1.2674 as of 10:15 a.m. in Tokyo from yesterday, when it advanced 0.9 percent. The shared currency lost 0.3 percent to 99.91 yen. The yen advanced to 78.83 per dollar from 78.95 yesterday.
Spanish 10-year yields on June 18 touched 7.29 percent, the highest since euro was introduced in 1999. While yields eased yesterday, they remained above the 7 percent level that pushed Greece, Ireland and Portugal to seek rescue packages.
The Fed will review new forecasts as it contends with continuing financial stress in Europe and a U.S. unemployment rate that has stayed above 8 percent for 40 consecutive months. JPMorgan Chase & Co. and Jefferies Group Inc. predict policy makers will extend the Fed’s so-called Operation Twist. The $400 billion program, announced in September, involves selling short- maturity debt and buying longer-term bonds.
“Any stimulus from the Fed is bearish for the U.S. dollar,” said Kurt Magnus, executive director of currency sales in Sydney at Nomura Holdings Inc., Japan’s biggest brokerage. “We’re expecting something stimulatory, whether or not it’s in the form of an extension of Twist, or a little bit of” asset purchases, also known as quantitative easing.
A report today by Statistics New Zealand showed the nation’s current-account shortfall in the three months through March widened to 4.8 percent of the gross domestic product, up from a revised 4.2 percent in the previous quarter.
The so-called kiwi lost 0.3 percent to 79.56 U.S. cents and slid 0.5 percent to 62.73 yen.
To contact the reporters on this story: Mariko Ishikawa in Tokyo at [email protected]; Monami Yui in Tokyo at [email protected]
To contact the editor responsible for this story: Rocky Swift at [email protected]