Euro near two-week low against dollar
The euro hovered near a two-week low against the dollar today with uncertainty about when Spain would request a rescue programme expected to limit gains.
Spain is expected to present its 2013 budget draft later. A credible budget along with comprehensive structural reforms could build the foundation for meeting conditions for a Spanish aid package and intervention by the European Central Bank in the bond market, analysts said.
The euro was flat at $1.2867, just above a two-week low of $1.2835 set the previous day. The euro has support at the 200-day moving average near $1.2826 and around $1.2740, the 38.2 per cent retracement of the July to September rally.
Talk that Chinese authorities might take steps to prop up the country's stock markets had earlier bolstered riskier currencies like the Australian dollar and lent some support to the euro against the safe-haven dollar and Japanese yen.
The country's securities regulator holds a regular meeting today.
"A combination of no fresh negative news from the euro zone and talk of additional measures from China has helped the euro," said Simon Derrick, head of currency research at Bank of New York Mellon.
"However, the reaction to the Spanish budget and whether Spain is going for a bailout or not in the near term along with the clear and present danger that Greece presents will be factors that will keep gains limited."
Spain's reluctance to request a bailout and trigger the ECB bond buying has weighed on the euro, which came under pressure as Spanish 10-year bond yields again topped 6 per cent.
"In this environment, unless there is news of a Spanish bailout, I think the momentum is for a weaker euro," said Mitul Kotecha, head of global foreign exchange strategy for Credit Agricole in Hong Kong.
A bailout request by Spain could change the picture, but that does not appear imminent, he added.
"I think eventually we'll crack through the 200-day moving average and move lower, with the euro/dollar likely to test below the $1.28 level.”
A Moody's review of Spain's ratings is also expected this week. A cut could take the country below investment grade and put further pressure on policymakers.
Demonstrators clashed with police in Athens and Madrid this week in an upsurge of anger at new austerity measures. Greece's international lenders are at loggerheads over how to respond to its debt crisis, threatening more trouble for the euro in the coming weeks.
For now though, the euro held steady against the yen, trading at 100.10 yen after having hit a two-week low of 99.71 yen yesterday.
The dollar was slightly lower at 77.70 yen, inching back towards a seven-month low of 77.13 yen hit on September 13, the day the Federal Reserve announced a new round of monetary stimulus.
Meanwhile, the growth-linked Australian and New Zealand dollars both rose 0.3 per cent against the dollar to $1.0400 and $0.8250 respectively.