The euro dropped against most of its major counterparts amid bets the European Central Bank won’t restart its government bond-purchase program even as Spanish credit-default swaps rose to a record.
Europe’s shared currency fell for a second week against the yen and dollar after Klaas Knot, a member of the ECB governing council, said he didn’t see justification to buy Spanish securities. The Dollar Index (DXY) rose as U.S. consumer confidence cooled, damping risk appetite. Australia’s dollar slid after a report showed China’s economy expanded less than analysts forecast, adding to bets global growth is slowing.
“The market is back to this realization that fiscal consolidation is very challenging when you don’t have economic growth, and looking at Spain and Italy, that is the concern,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “The consumer-confidence miss added to dollar strength overall.”
The euro weakened 0.8 percent to $1.3078 at 5 p.m. New York time, after gaining 0.8 percent in the previous two days. It fell 0.1 percent on the week. The single currency dropped 0.8 percent to 105.83 yen, losing 1 percent on the week. The dollar was 0.1 percent higher at 80.93 yen.
Futures traders increased their bets that the euro will decline against the dollar to the highest level in five weeks. Net-euro shorts rose to 101,364 in the five days ended April 10, from 79,480 in the previous period, figures from the Commodity Futures Trading Commission show.
The cost of insuring against a Spanish government default rose to a record 503 basis points, according to CMA prices. A basis point on a credit-default swap protecting 10 million euros ($13.1 million) of debt for five years is equivalent to 1,000 euros a year. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent if a borrower fails to adhere to its debt agreements.
Spain’s 10-year (GSPG10YR) government bonds fell today, pushing their yields up as much as 18 basis points, or 0.18 percentage point, to 6 percent. They have jumped more than 60 basis points this month as investors sought safer assets.
“I don’t see a good reason” for buying government bonds, Knot of the ECB said today at an event in Amsterdam. “I think there has been an overreaction to the unfortunate communication surrounding Spain.”
Seventeen of 22 economists surveyed this week by Bloomberg predicted the ECB will be forced to resume the Securities Markets Program to contain bond yields. Only one projected it will offer another round of the unlimited three-year loans, while nine said it may consider shorter-maturity loans.
Investors should sell the euro against the dollar, targeting $1.2625, Anders Soederberg, an analyst at Skandinaviska Enskilda Banken wrote to clients today, citing technical patterns. The trade should be ended if the shared currency rises above $1.3386, Soederberg wrote.
The Dollar Index gained 0.7 percent, the most since March 9, to 79.878 after the Thomson Reuters/University of Michigan preliminary index of consumer sentiment for April unexpectedly fell to 75.7. A Bloomberg News survey had forecast it would hold at last month’s 76.2.
Intercontinental Exchange Inc.’s gauge, which tracks the greenback against the currencies of six major U.S. trading partners, was little changed on the week.
Australia’s dollar weakened against 10 of its 16 major counterparts including the greenback and yen after China said its gross domestic product grew 8.1 percent year-on-year in the first quarter, the slowest expansion in almost three years. China is Australia’s largest trading partner.
“The market’s skew was definitely looking for a stronger number,” Jonathan Cavenagh, a Singapore-based currency strategist at Westpac Banking Corp. (WBC), Australia’s second-biggest lender, said of China’s GDP figure. “The knee-jerk reaction has been to sell risk currencies,” including the Aussie dollar.
The Aussie fell 0.7 percent to $1.0370 after rising earlier to $1.0453, the highest level since April 3.
Australia’s currency gained 2.9 percent over the past six months among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Currency Indexes. The U.S. dollar rose 1.4 percent, while the yen tumbled 5.8 percent and the euro lost 4 percent.
Mexico’s peso was the biggest loser today among the U.S. currency’s most-traded counterparts. The peso depreciated 1.1 percent to 13.1775 to the greenback. The South African rand lost 1 percent to 7.9491 per dollar.
The pound stayed lower against the dollar even after the U.K.’s AAA rating was affirmed by Standard & Poor’s. The British currency fell 0.7 percent to $1.5847. It gained 0.1 percent to 82.52 pence per euro.
The ratings company maintained its stable outlook, according to a statement released today.
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