Wed Apr 18, 2012 4:16pm EDT
* Spain concerns weigh on euro ahead of bond auction
* Minor price swings as New York session winds down
* Sterling rises to highest vs euro since Aug. 31, 2010
* Yen weakens for a second day vs dollar, euro
NEW YORK, April 18 (Reuters) - The euro slipped for a second
straight session o n Wednesday as euro-zone debt worries mounted
one day ahead of a bond sale in Spain, seen as a test of
Madrid's capacity to grapple with financial and budgetary
pressures.
Spain is the fourth-largest euro zone economy and some
investors worry its financing troubles could lead to problems in
healthier economies in the region.
The euro was further pressured by a rise in sterling, which
posted the biggest gains among the major currencies. The British
pound rallied after minutes showed the Bank of England expressed
concern that high inflation could persist into the medium term.
One BoE policymaker dropped his long-standing call for more
stimulus.
A fall in Spanish shares also weighed on the euro. Some
strategists said comments from European Central Bank policymaker
Jens Weidmann that countries should not expect the central bank
to tackle rising debt yields by buying government bonds prompted
the weakness in stocks.
"Spain right now has a liquidity problem, but it's not yet a
solvency problem," said Dan Dorrow, head of research at Faros
Trading in Stamford, Connecticut.
"Tomorrow's Spanish auction is a key driver, and it's a
tough call. Spain needs to be financed by another $50 billion as
of the balance of this year, and the key thing is, can they
maintain market access?"
Spain will auction up to 2.5 billion euros of 2014 and 2022
bonds on Thursday. Any evidence of poor demand, and high yields,
at the auction would aggravate concerns about Spain's fragile
fiscal position.
Spain projects its economy will contract 1.7 percent this
year as it compresses domestic demand to wrestle its budget
deficit down to 5.3 percent of gross domestic product from 8.5
percent in 2011.
Data showing bad loans at Spanish banks rose to their
highest level since 1994 also spooked investors.
Banks are facing a new wave of loan defaults, and analysts
say some banks may not survive as the government implements
sweeping budget cuts that add to the problems Spanish households
have in repaying debt.
EURO STAYS IN RANGE
In late afternoon New York trading, the euro slipped
0.1 percent against the dollar to $1.3114, recovering on
corporate buying and minor positioning ahead of the Spanish
auction, traders said. The euro last week briefly hit a
two-month low below $1.3000.
The euro's intraday bias against the dollar, however,
remains neutral for now, analysts at ActionForex.com said, given
that it has stayed within the $1.2994-$1.3212 range. But
ActionForex said a fall below $1.2994 will extend the decline
from the $1.3486 multi-month high hit in February to the $1.2625
low struck in mid-January.
A break of $1.3212, however, suggests that the choppy
decline from $1.3486 is merely a correction and is now complete,
the analysts said. ActionForex said the bias will then revert to
possible gains to $1.3385 and an eventual re-test of that
$1.3486 peak.
The euro has struggled to rise above $1.32 since early
April. CitiFX Wire said in a note that its traders were looking
to buy the range-bound currency on dips.
Traders also cited selling by Swiss investors after French
President Nicholas Sarkozy said a strong euro hurt exporters and
that the euro's exchange rate should be up for discussion with
the European Central Bank.
The euro was last down 0.7 percent against the
pound to 81.83 pence, at one point falling to its lowest since
Aug. 31, 2010, according to Reuters data, and below reported
options barriers at 82 pence.
Against the Swiss franc, the euro was up slightly at 1.2018
francs. Market participants were on the alert for any
action from the Swiss National Bank to weaken the franc.
Foreign exchange traders earlier cited talk that the SNB
was checking forward rates on the Swiss franc on Wednesday,
which some saw as a signal that policymakers are determined to
enforce their cap on the franc at 1.20 per euro.
Paul Robinson, head of European FX research at Barclays
Capital, said the bank expects the euro/Swiss franc floor to be
raised to 1.25 francs over the next quarter.
To loosen monetary policy and ensure the floor continues to
meet little challenge, such a move from the Swiss National Bank
makes sense, Robinson said.
Some 91.16 percent of positions on the euro/Swiss franc are
long or bets that the euro will rise against the Swiss franc,
according to data from Toronto-based online currency trading
firm Oanda Corp.
The dollar rose 0.5 percent against the yen to 81.23
yen. The euro traded up 0.4 percent on the day at
106.55 yen, holding above Monday's low below 105 yen.
The yen weakened further after Bank of Japan deputy governor
Kiyohiko Nishimura said on Wednesday the central bank was ready
to ease policy further if necessary to help Japan's economy
recover.
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