Markets: News  

Euro recovers after U.S. data, Spanish auction

NEW YORK (MarketWatch) -- The dollar turned lower against a basket of currencies on Tuesday as stocks rose and a report showed U.S. consumer confidence fell more than expected this month.

The Japanese yen also turned up after Japan's lower house of parliament passed a consumption tax bill.

The dollar index (DXY) , which measures the U.S.unit against a basket of six major currencies, turned down to 82.365 from 82.461 Monday.

The euro (EURUSD) traded at $1.2499, off its lows of $1.2454 and from $1.2501 in North American trading late Monday.

The Conference Board's consumer-confidence index fell to 62 in June -- the lowest level since January -- from a revised 64.4 in May. See story on consumer confidence.

"With a significant slowdown in job growth, contraction in consumer spending and Europe's troubles continuing to make the headlines, it is no surprise that Americans have grown more pessimistic," said Kathy Lien, managing director of FX strategy at BK Asset Management.

Still, U.S. stocks recovered some, which has been closely correlated to declines by the dollar. The S&P 500 Index (SPX) rose 0.7% in afternoon trading. Read more on U.S. stocks.

In earlier action, the euro was pressured after a weak sale of short-term Spanish government debt. The average yield on 3-month bills jumped to 2.36% from 0.85% in a May auction, while the 6-month yield rose to 3.24% from 1.74%.

The country's bond yields have been rising sharply lately, raising worries about how long Spain can finance itself in the public market before needing to ask for a bailout from its neighbors.

Spain sold more debt than planned, "but it had to pay up," said Kathleen Brooks, research director at Forex.com. "This is unsustainable. Although there are buyers when Spain's debt becomes cheap enough, the higher yields could lead the Spanish authorities to decide it's cheaper to go down the bailout route."

EU summit

Strategists said the weaker tone reflected low expectations that a summit of European Union leaders convening Thursday and Friday will effectively address the euro zone's sovereign-debt crisis.

"They don't have to accomplish the tasks but they have to say they're establishing a road map to a fiscal and banking union," said Thomas Higgins, a global macros strategist at Standish Mellon Asset Management.

Cyprus late Monday became the fifth euro-zone country to seek financial aid -- a widely anticipated move due to the country's banking sector exposure to Greek government debt.

Japanese politics, yen

The U.S. dollar edged down to 79.48 yen (USDJPY) from ¥79.67 late Monday.

The yen came under pressure after Japan's lower house of parliament passed a bill that would eventually double the country's consumption tax to 10%, marking a hard-fought victory for Prime Minister Yoshihiko Noda.

While the breakdown of votes raised the possibility that Noda's government could face to a no-confidence vote. Read story about Japan's tax hike.

The dollar briefly spiked versus the yen to trade as high as ¥79.79, boosted by worries about the outlook for Noda's government. But the greenback faded during the European and U.S. session, as it did against other currencies.

Adam Cole, currency strategist at RBC Capital Markets in London, said fears that the Japanese government could fall were misplaced.

"Voting against one bill, albeit an important one, is not the same as leaving the party," he said. "We maintain that the legislation to raise the consumption tax is a positive development for Japan and [the Japanese yen] and [that the dollar/yen pair] remains a sell on rallies."

The British pound (GBPUSD) rose to $1.5647, up from $1.5572 late Monday, continuing to benefit from an outflow of capital from the euro zone.