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Euro Weakens Versus Dollar as Spanish Yields Rise; Aussie

The euro erased gains from an almost one-month high against the dollar as Spanish bond yields rose and the nation’s unemployment increased for an eighth month.

The Dollar Index (DXY) gained for the first time in three days before the Federal Open Market Committee releases minutes of its March meeting, where policy makers raised their assessment of the economy. Australia’s dollar fell after the central bank signaled it may resume cutting interest rates.

“When you look at the peripheral yields, the focus is on Spain, so there’s a subtle risk-aversion bent to the market,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “It’s a bit of a trigger for euro weakness. The euro has repeatedly failed to break higher, above $1.34.”

The euro was little changed at $1.3318 per euro at 9:22 a.m. New York time, after touching $1.3368, almost the highest since Feb. 29. The U.S. currency added 0.3 percent to 82.32 yen. The euro gained 0.3 percent to 109.62 yen.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. major trading partners, rose 0.2 percent to 78.936.

The Australian dollar weakened versus all of its 16 major counterparts after the Reserve Bank signaled it may resume lowering borrowing costs as soon as next month if weaker-than- expected growth slows inflation.

Aussie Falls
“Overall, the tone was quite dovish,” Lee Sue Ann, a Treasury economist at United Overseas Bank Ltd. in Singapore, said of statement. “Interest-rate expectations are going to fall, and this will continue to weigh on the Aussie dollar.”

Traders expect the RBA will cut its benchmark rate by 79 basis points over the coming 12 months, according to a Credit Suisse Group AG index based on overnight indexed swap rates.

The Aussie declined 0.4 percent to $1.0379, and weakened 0.1 percent to 85.44 yen.

The yield on Spain’s 10-year bonds climbed seven basis points, or 0.07 percentage point, to 5.42 percent. The number of Spanish people registering for jobless benefits increased by 38,769 to 4.75 million, the Labor Ministry said today. The nation’s debt will reach 79.8 percent of gross domestic product this year, up from 68.5 percent last year, the government said today in its 2012 budget plan.

Spain’s Debt
“Accelerated fiscal tightening in Spain, at a time when its export markets are slowing and house prices are still falling, suggests that euro-dollar continues to be overly priced,” said Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in New York. “Euro is falling versus its European peers. Euro-dollar should eventually break below $1.30 in the coming weeks.”

The FOMC will release today minutes of its March 13 meeting when policy makers raised their economic assessment while repeating that “exceptionally low” interest rates may be needed through late 2014. Chairman Ben S. Bernanke still said on March 26 that further stimulus may be needed to lower unemployment.

“The minutes could potentially unwind some of the moves we’ve seen in the dollar against the euro, yen and Swiss since Bernanke’s speech last week,” said Aroop Chatterjee, a currency strategist at Barclays Capital Inc. in New York. “After the FOMC statement, the probability of more easing declined and the dollar strengthened. But since then, with Bernanke’s statement’s, the market has gone the other way.”

The dollar is down 2.9 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro is little changed and the yen has declined 10 percent.