NEW YORK (Reuters) - The euro fell against the dollar on Tuesday as uncertainty about the future of debt-laden Spain prompted some traders to book profits after driving it to a four-month high.
Pressure is growing on Spain to request aid and trigger a European Central Bank bond-buying program seen as inevitable to help the country finance its debts, with benchmark 10-year bond rising to just over 6 percent.
This even as Spain’s Deputy Prime Minister Soraya Saenz de Santamaria said on Tuesday the government was still considering the terms of a European bailout, a condition of ECB help, weighing further on investors’ patience.
The euro has risen more than 8 percent since hitting a two-year low around $1.2040 in July, fueled by aggressive central bank actions in both Europe and the United States to help their struggling economies. But that euphoria is starting to wear off.
Even if Spain does request assistance, analysts say it may not be a positive sign for the euro as the tough spending cuts that come with the aid would put further pressure on an economy already in recession.
“You are looking at a Spanish economy that has 25 percent unemployment and a huge overhang of residential mortgages. Even if you write a lot of those down, you are still talking about fiscal austerity so you can’t grow your way out of arguably a recession,” said Lane Newman, director of foreign exchange trading at ING Capital Markets in New York.
The euro fell 0.5 percent to $1.3052, having hit $1.3169 on Reuters data on Monday, its highest since May 4.
Option barriers were seen around $1.32.
A slightly better-than-expected German analyst and investor sentiment ZEW survey showing a rise in September after four months of decline failed to lift the single currency.
The euro fell 0.6 percent against the yen to trade at 102.63 yen, having rallied to a four-month high of 103.82 yen on Monday.
The dollar slipped 0.1 percent to 78.61 yen, having risen as high as 78.92 yen on Monday on buying by speculative accounts such as hedge funds, traders said. It hit a seven-month low of 77.11 yen last Thursday.
Speculation is growing the Bank of Japan might loosen policy following a policy meeting on Wednesday after the U.S. Federal Reserve launched a fresh round of monetary stimulus last week.
“We expect the Bank of Japan to increase its asset buying fund by five trillion yen ($63 billion). If it does, the dollar might have a chance to break resistance around 79.50 yen. Alternatively, if it doesn‘t, the dollar will fall below 78 yen,” said Osamu Takashima, chief Japan FX strategist at Citibank.
The Australian dollar slipped 0.4 percent to $1.0438, pressured by worries that slower growth in China would put the brakes on Australia’s mining boom.
Additional reporting by Nia Willaims in London; Editing by Theodore d'Afflisio