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Euro falls after Italian auction

Wednesday, March 13 12:18:23

The euro fell against the dollar and yen today after Italian borrowing costs rose at a bond auction and with investors looking for more gains in the U.S. currency if retail sales there showed a strong reading.

U.S. retail sales data for February, due at 1230 GMT, is forecast to show a 0.5 percent increase and is likely to give a broad lift to the dollar as it would add to speculation that the U.S. Federal Reserve may wind up its ultra loose monetary stimulus later this year.

The dollar edged up from session lows against the yen but was still lower on the day as some investors continued to book profits on hefty bets in favour of the U.S currency.

The yen's recovery against the dollar is likely to run out of steam as some hedge funds and long-term investors rebuild positions against the Japanese currency, given expectations of aggressive monetary policy easing from the Bank of Japan in coming months.

The euro was down 0.3 percent on the day against the dollar at $1.3001, not too far from recent three-month low of $1.2955. Middle east accounts were cited as main sellers.

The Italian debt auction saw weaker demand and higher borrowing costs compared to previous auctions due to the political uncertainty in Italy and this hurt the euro.

"The headline yields and the fact they had to pay slightly more than last time was a tad disappointing," said Neil Jones, head of hedge fund FX sales, at Mizuho Corporate Bank. "I can understand the hesitancy (for Italian debt) and that is why the yields are higher and this has weighed on the euro as well."

Against the yen, the euro was down 0.7 percent at 124.40 yen.

The dollar was down 0.4 percent against the yen at 95.65 yen, some way off the 3-1/2-year peak of 96.71 yen on Tuesday, where it had brought its year-to-date gains to more than 10 percent. Traders said there were dollar bids at 95.40 yen by investors betting on the dollar regaining some lost ground. Reuters