-- Euro briefly up above $1.35, but fails to sustain gain
-- Underlying sentiment for euro stays weak
-- Rise in dollar-funding could work in favor of dollar, but against euro, Australian dollar
-- Underlying sentiment for euro stays weak
-- Rise in dollar-funding could work in favor of dollar, but against euro, Australian dollar
By Tatsuo Ito Of DOW JONES NEWSWIRES
TOKYO (Dow Jones)--The euro rose Friday against the dollar in Asia on
short-covering but the gains were later pared as underlying sentiment
for the single currency remains weak, with a rise in borrowing costs for
Spain and France casting doubts over Europe's efforts to contain the
sovereign debt crisis anytime soon.
The euro briefly rose above $1.3500 partly as uncertainty about
whether the U.S. will reach an agreement on cutting its fiscal deficit
next week prompted some traders to sell dollars against the euro. But
the euro failed to sustain the rally. At 0450 GMT, the euro was at
$1.3478 from $1.3456 late Thursday in New York, according to EBS. It was
at Y103.59 from Y103.60.
"Further falls in the euro could be unavoidable," Hirotsugu Inoue,
executive director of foreign exchange at UBS in Tokyo. "I wouldn't be
surprised if it falls to $1.300 in the next week or so," he added.
At an auction to sell EUR3.563 billion of 10-year bonds Thursday,
Spain was forced to pay an average yield of 6.975%--just below the 7%
level at which Greece, Portugal and Ireland were forced to seek
bailouts. France also issued a series of medium-term bonds, including
EUR3.33 billion in July 2016 debt at 2.82%, up from 2.31% at the
previous auction.
The rise in yields reflects investors' demand for higher risk premiums
as a comprehensive agreement laid out by European leaders in October
failed to assure them that its sovereign debt problem will be solved
soon.
"The euro will remain in focus and the downward trend could continue,"
said Osao Iizuka, head of FX trading at Sumitomo Trust and Banking. The
European Central Bank apparently bought European government bonds
including Spanish and French bonds to prevent their yields from surging.
"The ECB's purchases have distorted the bond market. Without those
purchases the yields would have risen further and thus the euro should
have been sold further," Iizuka said.
The spread between LIBOR and overnight indexed swap rates--regarded as
a measure of the health of the banking system--has widened as concerns
about European and U.S. financial institutions have grown.
Iizuka said that in the ongoing risk-averse environment, rising demand
for dollar-funding tends to work in favor of dollar buying while the
euro and the Australian dollar are likely to be sold.
The dollar was at Y76.87 from Y77.06 and at CHF0.9134 from CHF0.9220. The U.K. pound was at $1.5774 from $1.5753.
The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at 78.19 from 78.309.
Interbank Foreign Exchange Rates At 2250 EST / 0450 GMT
Latest Previous %Chg Daily Daily %Chg
2150 GMT High Low 12/31
USD/JPY Japan 76.88-90 76.96-07 -0.12 77.03 76.88 -5.21
EUR/USD Euro 1.3491-94 1.3456-59 +0.26 1.3504 1.3448 +0.76
GBP/USD U.K. 1.5779-84 1.5753-58 +0.17 1.5788 1.5740 +1.11
USD/CHF Switzerland 0.9182-88 0.9219-22 -0.38 0.9222 0.9183 -1.76
USD/CAD Canada 1.0274-80 1.0289-95 -0.14 1.0296 1.0270 +3.31
AUD/USD Australia 1.0021-26 0.9998-01 +0.24 1.0038 0.9974 -2.06
NZD/USD New Zealand 0.7619-24 0.7586-93 +0.42 0.7622 0.7578 -2.24
Euro Rate
EUR/JPY Japan 103.73-76 103.59-81 +0.04 103.91 103.54 -4.50
EUR/JPY Yen
Source: ICAP Plc.
-By Tatsuo Ito, Dow Jones Newswires; +813-6269-2780; tatsuo.ito@dowjones.com 