The euro strengthened from a six- week low against the yen as Spain’s bonds rose for the first time in six days after a European Central Bank governing council member said the country’s borrowing costs should fall.
Europe’s shared currency advanced against the dollar after Italy sold 11 billion euros ($14.4 billion) of 91- and 361 day bills today, meeting the target for the auction. The yen weakened against all but one of its 16 major peers as the Bank of Japan (8301)’s policy inaction yesterday fueled speculation it will add to monetary easing later this month. The pound advanced the most this month against the dollar as a report showed U.K. retail sales rose for the first time in three months in March.
“Spanish 10-year yields are falling and that’s providing a little bit of support for the euro,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “It will probably be short-lived. There are concerns about implementation risk in Italy, Greece and Spain.”
The euro advanced 0.3 percent to 105.79 yen at 10:24 a.m. London time, after falling to 105.45 yen, the weakest since Feb. 22. Europe’s shared currency rose 0.2 percent to $1.3112, after reaching $1.3033 on April 9, the lowest since March 15. The yen was little changed at 80.69 per dollar.
The euro will probably weaken to $1.26 by June, Stretch said.
Markets ‘Nervous’
“Spain shows the markets remain nervous,” ECB governing council member Benoit Coeure said today in Paris. “Yet if you look at Spanish fundamentals, there is no reason why the situation shouldn’t normalize.” Spain’s Prime Minister Mariano Rajoy addresses lawmakers on the nation’s deficit today at 1 p.m. Madrid time.
The yield on Spain’s 10-year bond fell 12 basis points to 5.86 percent today, after touching 6.02 percent, the most since Dec. 12.
“Spain is the center of attention,” said Chris Walker, a currency strategist at UBS AG in London. “Clearly if Spanish yields move much higher that will hamper the euro. We are looking for a move down to $1.25 over three months.”
Should Europe’s shared currency break below $1.3033 it may weaken to $1.2975, Ralf Umlauf, head of floor research at Helaba Landesbank Hessen-Thueringen in Frankfurt, wrote in a note to investors.
BOJ Meeting
The yen has strengthened 2.8 percent in the past week, the best performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro has weakened 0.1 percent, while the dollar gained 0.3 percent.
Bank of Japan policy makers yesterday kept their key interest rate and asset-purchase plan unchanged, the second- straight meeting without a policy shift. They meet again on April 27.
Governor Masaaki Shirakawa and his board unexpectedly expanded bond purchases by 10 trillion yen on Feb. 14 while setting an inflation goal of 1 percent. Nomura Holdings Inc., SMBC Nikko Securities Inc. and NLI Research Institute Ltd. expect the BOJ to expand the program at the next meeting to help meet the price target.
“There’s definitely a reasonable chance” the BOJ will do more later this month, said Sacha Tihanyi, a senior currency strategist in Hong Kong at Scotiabank, a unit of Bank of Nova Scotia. (BNS) Monetary easing by Japan’s central bank “fundamentally undermines the yen,” he said.
Retail sales at U.K. stores open at least 12 months, measured by value, gained 1.3 percent from a year earlier, after sliding 0.3 percent in February, the London-based British Retail Consortium said today.
The pound advanced 0.2 percent to $1.5900, after climbing as much as 0.4 percent, the most since March 30.
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