The euro fell against most of its major counterparts as a debate in Spain about how to fund a recapitalization of the Bankia group increased concern the monetary union’s sovereign-debt crisis was deepening.
The 17-nation currency traded against the dollar at almost the lowest since July 2010 as German 10-year bund yields dropped to a record after European Central Bank Governing Council member Ewald Nowotny said a revival of bond purchases by the central bank isn’t being discussed. Mexico’s peso and South Africa’s rand rose the most among the major currencies as oil and stock futures advanced. The yen erased losses as confidence among U.S. consumers fell in May to the lowest level in four months.
“We’re waiting to see what the ECB involvement is within recent talk of a Spanish bank bailout,” said Brian Kim, a currency strategist in Stamford, Connecticut, at Royal Bank of Scotland Group Plc. “Any of the euro movements we’re seeing now are not necessarily too much of a breakout given the degree of uncertainty that’s overhanging.”
The euro fell 0.1 percent to $1.2527 at 11:29 a.m. New York time after touching $1.2496 on May 25, the lowest since July 6, 2010. It has lost 5.4 percent in May, the most since September. The euro declined 0.1 percent to 99.59 yen and has dropped 5.8 percent this month. The yen was little changed at 79.48 per dollar.
The rand rose 0.4 percent to 8.3135 per dollar and the peso gained 0.3 percent to 13.9071. Oil, Mexico’s largest export, added 1.1 percent to $91.88 a barrel. Futures on the Standard & Poor’s 500 Index rose 1.1 percent.
The Conference Board’s confidence index decreased to 64.9 from a revised 68.7 in the prior month, figures from the New York-based private research group showed today. The median forecast of economists surveyed by Bloomberg News called for a reading of 69.6.
Spain backtracked on a plan to use government debt instead of cash to bailout BFA-Bankia, the nation’s third-largest lender, as Prime Minister Mariano Rajoy struggles to shore up the nation’s lenders without overburdening public finances.
An economy ministry spokesman said yesterday the government was considering using an injection of treasury debt instead of cash to recapitalize the lender, as laid out in legislation approved in February. The spokesman said today had become a “marginal” option for the 19 billion-euro ($24 billion) bailout. As Spain’s market access narrows, it depends increasingly on domestic lenders, which in turn are getting cash from the ECB.
“There are bullets flying from every angle and confidence is incredibly low, and that looks set to remain the case,” said Kit Juckes, head of foreign-exchange research in London for Societe Generale SA. “Spain’s problems immediately replaced Greece. It’s just a matter of time before we head down to $1.20” per euro.
The extra yield investors demand to hold Spain’s 10-year bonds instead of similar-maturity German notes soared to 5.16 percentage points today, the most since 1995, data compiled by Bloomberg showed.
Standard & Poor’s cut Spain’s credit rating on April 26 to BBB+ from A, saying there is an increasing likelihood the government will need to provide further fiscal support to the banking sector.
“Because Spain has a big share in the euro region’s economy, a further widening of the Spain-Germany yield spread will have a substantial negative impact over markets,” said Tohru Sasaki, head of Japan rates and foreign-exchange research in Tokyo at JPMorgan Chase & Co. “The sell-off of Spain’s bonds is generating risk-off sentiment,” supporting the dollar.
Consumer confidence in the euro area was at minus 19.3 in May, according to a Bloomberg News survey before the final reading is released tomorrow. The unemployment rate climbed to 11 percent in April, the highest in data compiled by Bloomberg going back to 1990, economist forecasts in a separate survey showed before the June 1 report.
The euro rose yesterday after polls showed Greece’s pro- bailout parties gaining ground, damping speculation the nation will exit the currency bloc.
The pound approached a three-and-a-half-year high against the euro amid the monetary union turmoil. It strengthened as much as 0.1 percent to 79.87 pence per euro after reaching 79.51 pence on May 16, the strongest level since November 2008. Sterling has appreciated 4.1 percent this year.
The British currency has not fared as well against the yen this month, having weakened 3.8 percent, the largest monthly loss since Augusts 2010. The pound may extend its decline if it breaks through its 200-day moving average, according to Gaitame.com Research Institute Ltd. The moving average stood at 124.20, providing the currency with support, said Takuya Kawabata, a researcher at the Tokyo-based firm.
The next support for the pound is 123.48, the 61.8 percent retracement of the Jan. 13 low from the March 21 high, Kawabata said, citing a Fibonacci chart. If Sterling breaks that level, it may fall toward 122.77, matching a high in December, he said.
Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a new high or low.
To contact the reporters on this story: Catarina Saraiva in New York at firstname.lastname@example.org; Lucy Meakin in London at email@example.com
To contact the editor responsible for this story: Dave Liedtka at firstname.lastname@example.org