Euro Trades Near 2-Week Low Versus Yen Before Spanish Bond Sales

By Monami Yui and Kristine Aquino - May 1, 2012 8:11 AM GMT+0700

The euro was 0.3 percent from a two- week low against the yen before Spain sells notes this week amid concern Europe’s debt crisis is hurting economic growth.

Demand for the 17-nation currency was limited after Luxembourg Prime Minister Jean-Claude Juncker said he’s stepping down as head of the group of euro-area finance ministers due to Franco-German interference in managing Europe’s fiscal woes. Australia’s dollar fell versus most major peers before the Reserve Bank sets interest rates at a policy meeting today. The dollar was below 80 yen for a second day.

“I would anticipate political instability, retracing steps around fiscal austerity and weaker economic numbers all point to downside risk for the euro,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney. “I wouldn’t be surprised if it does underperform.”

The euro traded at 105.76 yen at 10:02 a.m. in Tokyo from the New York close yesterday, when it touched 105.47, the weakest since April 17. The common currency was little changed at $1.3239. The dollar fetched 79.89 yen from 79.82 yesterday, when it slid to as low as 79.74, the least since Feb. 22.

The so-called Aussie was at $1.0422, 0.1 percent lower than the close yesterday, when it declined 0.4 percent. The currency fetched 83.22 yen from 83.25.

Spain will auction three- and five-year notes on May 3. Yields on the nation’s 10-year bonds climbed above 6 percent last month, stoking speculation the euro area’s fourth-largest economy would follow Greece, Ireland and Portugal in seeking a bailout. Spain’s economy entered its second recession since 2009, a government report showed yesterday.

Franco-German Interference

France and Germany “act as if they are the only members of the group,” Juncker said yesterday at a podium discussion in Hamburg. He also said he’d “fully support” a potential candidacy of German Finance Minister Wolfgang Schaeuble to succeed him at the helm of the Eurogroup. A decision on replacing Juncker has been postponed until after the second round of France’s presidential election on May 6.

The euro has weakened 6.1 percent over the past year, the worst performance of the 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The yen jumped 6.1 percent, the biggest gain, and the dollar rose 5.9 percent.

The Reserve Bank of Australia will reduce its overnight cash rate target by 0.25 percentage point from 4.25 percent today, according to 27 of 29 economists surveyed by Bloomberg News. The other two predict a half-percentage-point reduction.

U.S. ISM

The dollar was near a two-month low against the Japanese currency before reports forecast to show U.S. manufacturing growth eased, fanning speculation that the Federal Reserve is ready to add to monetary stimulus if the recovery falters.

The Institute for Supply Management Inc.’s factory index was 53 in April from 53.4 in March, according to a Bloomberg poll before today’s data. The Tempe, Arizona-based ISM group’s gauge of service industries, was 55.3 last month from 56 in March, economists forecast ahead of the data on May 3.

U.S. gross domestic product grew in the first quarter at a 2.2 percent annualized rate, Commerce Department figures showed last week. That lagged behind the 2.5 percent median estimate in a separate Bloomberg poll.

The Fed bought $2.3 trillion of bonds in two rounds of so called quantitative easing from December 2008 to June 2011 to stimulate the economy through lower borrowing costs.

“The weaker numbers out of the U.S. over the last week, and the general weakness in the U.S. dollar which appears to have followed, is certainly contributing to some of the yen strength,” RBS’s Gibbs said.

To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net