NEW YORK (Frankfurt: A0DKRK - news) , Jan 4 (Reuters) – The euro slipped against the dollar on Wednesday after a muted German Bund auction, with investors nervous about demand for euro zone independent debt, which may possibly push borrowing costs higher for already troubled economies.
While the German 10-year auction was an improvement on a similar debt sale in November (Stuttgart: A0Z24E - news) , which had raised fears the bloc’s debt crisis was spreading to its strongest state, it was not enough to allay concerns.
Investor appetite to buy euro zone government debt will be further tested when France sells bonds on Thursday and at Spanish and Italian auctions next week. Markets are particularly concerned about Italy’s ability to cover around 100 billion euros of redemption and coupon payments falling due in the first four months of the year.
“Economic data today was mixed and risk sentiment has turned more bearish, aggravating pressures in the European bond market and weighing on the euro,” said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto. “Two bond auctions today (Germany and Portugal) went off reasonably well considering the environment.”
The euro slid 0.7 percent to $1.2957, with a session low of $1.2943, after reported stops were triggered below $1.3010.
Euro zone economic data also tempered risk appetite on Wednesday. The latest set of purchasing managers’ indexes (PMIs) suggest the region is on course for a moderate recession, even though the composite PMI reading was slightly better than expected.
Against the yen, the single currency was down 0.7 percent at 99.41 yen, holding above the decade low of 98.71 hit on electronic trading platform EBS in holiday-thin trade on Monday.
FRANCE IN FOCUS
France, which is seen at greater risk of contagion from the euro zone debt crisis than Germany, will auction linking 7 billion and 8 billion euros of longer-out-of-date bonds on Thursday.
Analysts said lacklustre demand at the auction may possibly increase concerns that France may possibly lose its triple-A credit rating. The country and its euro zone peers were place on review for a possible downgrade by Standard & Poor’s last month and other ratings agencies have also warned that its top-grade status may be at risk.
“There will be more attention on the French auction, especially as there are subdue pendant concerns of downgrades. The situation in France is more fragile than in Germany,” said Michael Sneyd, currency strategist at BNP Paribas (Other OTC: BNPQF.PK - news) in London.
Traders are also looking ahead to the meeting of French Head Nicolas Sarkozy and German Chancellor Angela Merkel on Jan. 9 to see how much progress Europe (Chicago Options:^REURUSD - news) can make on their pledge for tighter monetary integration.
The greenback gained 0.1 percent against the yen, edging up to 76.69 yen, but subdue not far from a record low of 75.311 touched late last year.