Dollar Loses Ground on Spain Bailout News

September 21st, 2012
in contributors

Closing the Week with Forexpros

by Forexpros Staff


The dollar traded lower against most major currencies on Friday after reports surfaced that Spain may be close to requesting bailout assistance from its European neighbors.

The news sparked a risk-on trading session that fueled demand for the euro and other higher-yielding currencies and sent the greenback falling.

Follow up:

In U.S. trading on Friday, EUR/USD was up 0.15% at 1.2988.

The Financial Times reported earlier that Spain is moving closer to requesting a sovereign bailout and is currently working out the details with European Union policymakers.

A bailout would allow the European Central Bank to step in and buy Spanish sovereign debt, which would lower borrowing costs in the large European economy.

Yields on Spanish 10-year bonds this year have repeatedly soared above the 7% threshold considered unsustainable by the markets.

Meanwhile, the dollar continued to see downward pressure stemming from the Federal Reserve's recent decision to roll out a third round of bond purchases from banks, a monetary policy tool known as quantitative easing (QE3).

The greenback, meanwhile, was down against the pound, with GBP/USD trading up 0.23% at 1.6252.

The dollar was down against the yen, with USD/JPY trading down 0.13% at 78.14, and down against the Swiss franc, with USD/CHF trading down 0.07% at 0.9325.

The dollar was mixed against its cousins in Canada, Australia and New Zealand, with USD/CAD trading up 0.03% at 0.9773, AUD/USD up 0.11% at 1.0448 and NZD/USD trading up 0.04% at 0.8293.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.13% at 79.40.

Euro Generally Strengthens

In addition to the eurogaining against the U.S. dollar, the reports about Spain pushed the euro higher against the yen on Friday.  The yen, meanwhile, moved lower in wake of a Bank of Japan move to stimulate its economy, though the pair regained composure in afternoon U.S. trading.

In U.S. trading on Friday, EUR/JPY hit 101.50, up 0.03%, up from a low of 101.26 and off a high of 102.10.

The pair sought to test support at 101.50, the earlier low, and resistance at 102.10, the earlier high.

The euro did close down against the pound, but was up against the Canadian dollar, with EUR/GBP trading down 0.04% at 0.7995 and EUR/CAD trading up 0.15% at 1.2690.


The news about Spain also moved gold prices higher in U.S. trading on Friday.  The metal also saw continued gains stemming from central bank decisions around the world to stimulated their economies with monetary easing measures.

On the Comex division of the New York Mercantile Exchange, gold futures for October delivery were up 0.51% at USD1,776.85 a troy ounce, up from a session low of USD1,768.85 and down from a high of USD1,787.55 a troy ounce early during the session.

Gold futures were likely to test support at USD1,768.85 a troy ounce, the earlier low, and resistance at USD1,787.55, the earlier high.

Gold continued to see support stemming from the Federal Reserve's recent QE3 decision.

The European Central Bank and the Bank of Japan have unveiled similar monetary policy tools to jolt their respective economies, which further sent gold prices rising.  Stimulus tools tend to weaken paper currencies, the dollar especially, and make gold an attractive hedge.

Elsewhere on the Comex, silver for December delivery was down 0.04% and trading at USD34.668 a troy ounce, while copper for December delivery was up 0.74% and trading at USD3.787 a pound.

Crude oil futures rose in U.S. trading on Friday after reports about Spain seeking a bailout surfaced.  Hopes that central bank stimulus measures around the world will spur more robust growth rates also pressured the commodity higher.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in November traded at USD92.94 a barrel on Friday, up 0.56%, off from a session high of USD93.83 and up from an earlier session low of USD92.70.

Ongoing tensions in the Middle East pushed the commodity upwards as well, especially due to escalating tensions within Libya.

An attack on the U.S. consulate have stoked concerns over the new government's ability to exercise its authority.

On the ICE Futures Exchange, Brent oil futures for November delivery were up 0.84% and trading at USD110.95 a barrel, up USD18.01 from its U.S. counterpart.

The big news Friday was in Europe.  European stocks closed higher Friday, after hopes of an ECB led Spanish bailout hit the newswire, despite Thursday's bearish economic reports.

At the close of European trade, the EURO STOXX 50 advanced 0.86%, France’s CAC 40 rose 0.64%, while Germany’s DAX 30 climbed 0.84%.

Financial stocks pushed higher following the news, as shares in German lenders Deutsche Bank and Commerzbank rose 1.11% and 0.39%, while France's BNP Paribas and Societe Generale climbed 0.93% and 0.55% respectively.

Peripheral lenders contributed to gains, with Italian banks Intesa Sanpaolo and Unicredit surging 2.04% and 1.40%, while Spain's Banco Santander and BBVA advanced 1.06% and 1.17%.

Elsewhere, insururers also remained sharply higher. Italian group Assicurazioni Generali jumped 1.36%, while France-based Axa rallied 1.54% and Germany's Allianz gained 1.66%.

In London, FTSE 100 eased 0.07%, but remained supported by sharp gains in financial and mining stocks.

The Royal Bank of Scotland led U.K. lenders higher, with shares surging 2.16%, while Lloyds Banking advanced 1.65% and Barclays inched up 0.04%. HSBC Holdings underperformed on the other hand, as shares fell 0.26%

Meanwhile, mining group Vedanta Resources held gains, with shares up 2.47%, while BHP Billiton added 0.33% and Rio Tinto turned lower, dropping 0.85%.

Also on the upside, Vodafone rallied 1.31% following reports the phone company is open to discuss tax issues and that it will explore a new option to pay the government if interest and penalty are waived off.

Separately, Barclays raised its price target on the stock.

In the U.S., equity markets followed Europe higher with the Dow up 0.27%, the broad based S&P 500 higher by 0.29% and the tech heavy Nasdaq up 0.46 in midday trading.  But by the close only the Nasdaq could stay in the green (+0.13%), while the S&P 500 declined by a hair (-0.01%) and the Dow Jones Industrials fell 0.13%.



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