The euro weakened for a second day against the dollar as Spain was poised to become the fourth of the 17 euro countries to require emergency assistance.
The 17-nation euro fell for the first time in six days versus the yen as the currency bloc’s finance chiefs plan weekend talks on a potential Spanish aid request to shore up the nation’s lenders. The Dollar Index had the biggest gain in three months as Treasuries gained after reports showed German exports tumbled and Italian industrial production shrank. Canada’s dollar declined as job growth in the nation slowed.
“I think the outlook is still pretty bearish for the euro,” said David Grad, a foreign-exchange strategist at Bank of America Corp. in New York. “Even a short-term surprise in terms of policy for Spain, in the big picture, things haven’t changed much. The market is still uncertain on how the situation is going to unfold going in to the Greek election next week and isn’t going to shake that off easily.” The euro depreciated 0.5 percent to $1.2499 at 1:31 p.m. New York time after dropping 0.2 percent yesterday, paring its first five-day gain in six weeks. The common currency declined 0.7 percent to 99.32 yen, trimming this week’s advance to 2.4 percent. The yen strengthened 0.2 percent to 79.46 per dollar, snapping a four-day drop.
Trading Levels
ICAP Plc, the world’s largest broker of transactions between banks, said daily spot foreign-exchange trading volume on its EBS platform fell 25 percent in May from the same month last year. The daily traded volume was 19 percent higher than the previous month, at $130.8 billion, ICAP said today on its website.
The euro has declined 3.9 percent during the past six months, making it the worst performer among 10 developed-nation currencies, according to Bloomberg Correlation-Weighted Indexes. The dollar gained 3.2 percent and the yen climbed 0.7 percent.
“There’s little comfort for the euro within this morning’s data,” said Ian Stannard, head of European currency strategy at Morgan Stanley in London. “Within the periphery of Europe the problems are continuing. Both German exports and imports have fallen more than expected. We remain bearish on the euro. It has a lot further to fall.”
It is in everbody’s interest for Greece to stay in the euro, President Barack Obama said today in the White House briefing room. He pressed leaders of the euro zone to act quickly to resolve to bolster growth while dealing with debt.
Currency Forecasts
The shared currency will strengthen to $1.26 by year-end, according to the average analyst estimate in a Bloomberg survey. Morgan Stanley forecast a decline to $1.19 by the fourth-quarter while UBS AG projected the 17-nation currency at $1.15 and Barclays Plc and Bank of Tokyo-Mitsubishi UFJ predicted $1.18.
The euro’s rebound versus the dollar failed to breach resistance at $1.2624, the January low. Support is at $1.2288 and $1.2134, according to data compiled by Bloomberg. A resistance level is where analysts anticipate orders to sell are grouped and a support level is an area where the anticipate buy orders to be clustered.
“Euro-dollar’s failed to push through $1.2625 to the top side, which for me solidifies the fact that this is simply one of these bounces that we get after a significant depreciation in currencies,” said Lauren Rosborough, senior foreign-exchange strategist in London at Societe Generale SA.
The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, gained as much as 1 percent to 82.890, the largest rally since March 9, before trading at 82.718. The gauge dropped to 81.911 yesterday, the lowest level since May 28.
Risk Markets
U.S. 10-year yields dropped from the highest level this month after Fitch Ratings cut Spain’s credit grade to within two steps of junk grade.
Higher-yielding currencies fell against the dollar and yen after Federal Reserve Chairman Ben S. Bernanke refrained yesterday from signaling the central bank will undertake more monetary stimulus measures.
South Africa’s rand was the biggest loser against the greenback, declining 0.7 percent to 8.4337. Norway’s krone lost 0.3 percent to trade at 6.0627 per dollar and Australia’s dollar fell 0.2 percent to 98.75 U.S. cents after breaching parity yesterday.
Canada’s dollar fell 0.4 percent to C$1.0324 after a report showed employment rose by 7,700 jobs in May 7,700 jobs in May, Statistics Canada following gains of 58,200 and 82,300 in the prior two months.
Peso Rally
Mexico’s peso increased against all its major counterparts, rising 0.4 percent to 14.0071 per dollar. The country’s central bank kept its benchmark interest rate unchanged for the 27th straight meeting as a pick-up in inflation and a slump in its currency offset concern that a faltering U.S. economy may undercut export demand.
The pound dropped, snapping a two-day advance against the dollar, as report showed U.K. factory-output prices unexpectedly fell in May. The price of goods at factory gates slipped 0.2 percent from April, the first decline since December, the Office for National Statistics said in London. Sterling depreciated 0.6 percent to $1.5439.
German exports, adjusted for work days and seasonal changes, slid 1.7 percent in April from a month earlier, when they gained 0.8 percent, the Federal Statistics Office in Wiesbaden said. Economists forecast a drop of 0.7 percent, according to a Bloomberg News survey.
Italian output declined 1.9 percent from March, when it rose a revised 0.6 percent, the national statistics office said in Rome. Production slid 9.2 percent from a year ago on a workday-adjusted basis.
The euro reached a 2012 low of $1.2288 on June 1 and traded as strong as $1.3487 on Feb. 24.
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