Euro drifts lower in Asia as Spain auction looms

The euro eased in Asian trade Thursday after a successful debt auction by embattled Portugal soothed fears for the eurozone economy, dealers said, as attention turned towards Spain and Italy.

The European single currency slipped to $1.3099 in Tokyo morning trade, down from $1.3128 in New York late Wednesday. The euro also edged down to 108.82 yen from 108.95 yen. The dollar fell to 83.00 yen from 83.23.

Investors were looking to Spanish and Italian debt auctions later in the day as well as the results of the European Central Bank’s policy meeting.

“The eurozone risk seems to be subsiding, but we still need to watch the (bond) auctions in Spain and Italy,” said Kazuhiro Takahashi, general manager at Daiwa Securities Capital Markets in Tokyo.

Spain will auction 2 billion to 3 billion euros of five-year government bonds while Italy will auction up to 6 billion euros of five-year and 15-year treasury bonds.

Spain, the fourth biggest economy in the eurozone, equal in size to Ireland, Greece and Portugal combined, must show it can access market financing at affordable rates or re-ignite speculation it will need an international bailout.

The ECB is likely to keep steady on rates, with more than half the economists polled by Dow Jones Newswires saying the ECB will not tighten policy at all this year because of the threat of a eurozone sovereign debt default.

In Wednesday’s auction, Portugal sold 1.25 billion euros ($1.64 billion) in long-term debt at much lower than expected interest rates in a critical test for its credibility and that of the wider eurozone in the financial markets.

The Portuguese debt agency said the yield in the bonds maturing in June 2020 came in at 6.716 percent, down from 6.806 percent at a similar sale in November.

“This was well below the 7 percent yield expected, a borrowing cost which proved unsustainable for Greece and Ireland,” noted John Kyriakopoulos at National Australia Bank.

Ireland last year followed Greece in seeking an international bailout backed by the EU and the International Monetary Fund, with markets spooked in recent weeks by concerns that Portugal would be next.

On the bonds maturing in October 2014, which Portugal also offered, the yield jumped to 5.396 percent, up sharply from the 4.041 percent paid in November — suggesting the short-term outlook was more guarded.

The dollar remained in a narrow range, dealers said.

Citibank Japan chief FX strategist Osamu Takashima said the greenback may encounter difficulty trying to break above 83.50 yen as “Japanese exporters have selling orders lined up above that level.”

The greenback fell further to 29.03 Taiwan dollars from 29.07 Wednesday,after earlier hitting a fresh 13-year low at 29.019.

Against other Asian units, the dollar fell to 1.2887 Singapore dollars from 1.2926 on Wednesday, to 1,113.45 Korean won from 1,118.65, to 30.40 Thai baht from 30.41, and to 9,042.50 Indonesian rupiah from 9,048.00.

The US unit rose to 44.13 Philippine pesos from 43.97.