April 5, 2012 / 10:45 AM / 6 years ago

FOREX-Euro falls broadly as Spain worries escalate

* Euro hits 3-week lows versus dollar and yen

* Spanish yields rise after Wednesday’s bond auction

* Euro falls briefly below SNB’s 1.20 floor

By Neal Armstrong

LONDON, April 5 (Reuters) - The euro fell broadly on Thursday with further losses expected as a decline in Spain’s bond prices highlighted investor cocnern about a renewed round in the euro zone debt crisis.

Spanish government bonds were under pressure as worries grew about Spain’s ability to meet deficit targets and fund itself after a poorly received auction on Wednesday.

“If we continue to see Spanish yields pushing out, the euro should broadly come lower and I‘m happy to stick with a short position for now, looking to take profit near $1.3000” said Jeremy Stretch, head of currency strategy at CIBC.

“There’s a realisation that structurally the periphery of Europe remains under extreme stress,” he added.

The euro, which dropped nearly 1 percent on Wednesday, fell 0.6 percent to $1.3057 on trading platform EBS, its lowest since mid-March.

Traders reported bids around $1.3050, while technical analysts said Wednesday’s close in the euro below the 55 and 100-day moving averages was a negative signal, with focus moving to last month’s lows around $1.3000.

“The move in the euro today is being driven by the rise in Spanish and Italian yields and that pressure is likely to persist,” said Adrian Schmidt, currency strategist at Lloyds Banking Group.

Traders worry that the rally in debt of euro-zone peripheral nations sparked by the European Central Bank’s two low-interest, three-years loans, or LTROs, may be coming to a screeching halt.

After holding interest rates at a record low of 1.0 percent of Wednesday, European Central Bank President Mario Draghi said “downside risks to the economic outlook prevail” and dismissed talk of an exit strategy from accommodative policy measures.

The euro and high-yield currencies have also been under pressure against the dollar after Federal Reserve policy meeting minutes released on Tuesday showed the U.S. central bank was becoming less eager to print more money to bolster the economy.

“With concerns over Spain peaking through and political risk ever more apparent with the upcoming French and Greek elections ahead, we reiterate our EURUSD forecast of 1.28 by end of Q2,” BNP Paribas said.

Against the yen, the euro was down 1 percent at a three-week low of 107.047 yen, with a fall in equity markets lending support to the low-yielding Japanese currency.


The euro also fell against the Swiss franc, briefly breaking below the Swiss National Bank’s euro floor of 1.2000 francs for the first time since the policy was introduced in September 2011 and touching 1.1990 on EBS.

An SNB spokesman subsequently said an exchange rate below 1.20 francs would not be tolerated, while traders reported significant demand for euros from the SNB on electronic trading platforms as the rate quickly recovered to 1.2020.

“I don’t think this changes much and the SNB are still likely to be around in unlimited amounts,” said Lloyds’ Schmidt.

The dollar index, tracking the greenback’s performance against major currencies, hit a three-week high of 80.079, boosted by demand for perceived safer assets.

Traders reported thin market conditions ahead of the Easter holidays and the all-important U.S. jobs data which will be released on Friday.

The U.S. economy is expected to have added 203,000 jobs last month, after February’s non-farm payrolls rose 227,000.

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