Euro Falls From Four-Month High as Spain’s Debt Yields Climb

The euro weakened against the dollar for the first time in five days as Spanish bonds declined while Prime Minister Mariano Rajoy considered whether to request economic assistance for the indebted nation.
The 17-member currency fell from a fourth-month high versus the greenback after Spain announced it was selling 4.5 billion euros ($5.9 billion) of three- and 10-year debt on Sept. 20. South Africa’s rand weakened as violence in the nation’s platinum mines escalated. Taiwan’s dollar and South Korea’s won rallied as international investors increased holdings of Asian stocks.
“People are still waiting for news out of Spain and it’s essentially concern about when it will formally request a bailout,” said Chris Walker, a foreign-exchange strategist at UBS AG (UBSN) in London. The euro is weakening as “the market is taking a negative slant after Friday’s finance ministers’ meeting.”
The euro fell 0.1 percent to $1.3119 at 8:59 a.m. New York time, after climbing to $1.3169 at the end of last week, the most since May 4. The shared currency added 0.1 percent to 103.03 yen. The dollar rose 0.2 percent to 78.54 yen.

Market Measure

The euro’s 14-day relative strength index versus the dollar and the yen remained above 70 today, even with the price declines. A reading above 70 indicates an asset may have rallied too far, too quickly and is due for a correction.
Spanish 10-year bonds extended a decline, pushing the yield up 15 basis points to 5.93 percent.
The Dollar Index (DXY) rose 0.1 percent to 78.891 after weakening to the lowest since February last week.
The index, which IntercontinentalExchange Inc. uses to track the greenback against those of six U.S. trading partners, may pause its decline this week as it’s entering an “important” support zone, Niall O’Connor, a New York-based technical analyst at JPMorgan Chase & Co, wrote yesterday in a research note to clients. This area includes the 78.398 level that is the 50 percent retracement of its rise from 72.696 on May 4, 2011, to 84.100 on July 24, according to O’Connor. It also includes the May 1 low of 78.603.
The dollar has weakened 1.5 percent last week versus the currencies of nine developed-nation counterparts, according to Bloomberg Correlation-Weighted Indexes. The yen fell 1.7 percent and the euro strengthened 1.4 percent.

Rand Falls

South Africa’s rand tumbled against most its most-traded counterparts as violence in the country’s platinum mines continued. The rand fell 0.2 percent to 8.2205 per dollar.
Taiwan’s dollar rose against all its major counterparts, followed by South Korea’s won. The Taiwanese currency gained 0.4 percent to 29.307 versus the greenback and the won advanced 0.1 percent to 1115.97 per dollar.
Investors increased holdings of South Korean and Taiwanese equities by 537.6 million today as the Federal Reserve’s bond purchase plan announced last week spurred inflows in to the region’s higher-yielding assets.
Policy makers must control volatile capital flows as quantitative easing measures taken in the U.S. and Europe have a “negative spillover” into developing countries, Bank of Korea Governor Kim Choong Soo said on Sept. 14. The won added 0.1 percent to 1,115.97 per dollar.

Investor Sentiment

Rajoy’s government will unveil additional austerity measures by the end of the month based on recommendations made in July, including a possible increase in the retirement age, shifting from labor to consumption taxes and deregulating closed professions, according to European officials. Demonstrations two days ago in Madrid against fiscal cuts underpinned the political balancing act Rajoy faces.
Since July 26, when European Central Bank President Mario Draghi said he would do “whatever it takes” to save the 17- nation euro, the currency has appreciated versus each of its 16 major counterparts tracked by Bloomberg.
The euro touched a four-month high versus the dollar and the yen at the end of last week after a Federal Reserve decision to expand monetary stimulus boosted higher-yielding assets, undermining the U.S. currency.
What European policy makers “have shown so far is their willingness to support the currency union and do as much as they can,” said Mary Nicola, a New York-based currency strategist at BNP Paribas SA.
The Australian dollar fell 0.3 percent to $1.0517, after strengthening to $1.0625 on Sept. 14, the highest level since March 20.
The so-called Aussie weakened even as the Reserve Bank of Australia said the country’s currency is held by as many as 23 national central banks, according to internal documents released today under a Freedom of Information Act request by Bloomberg News.