The European common currency reversed to the downside versus the low yielding U.S. dollar during the European session today after the Spanish and French bond auctions on fears the unsustainable yields might pull Spain into the debt-trap, following other indebted nations such as Greece, Ireland and Portugal which sought bailouts after borrowing costs kept on rising.
Spain sold today a total of 2.54 billion euros of bonds maturing after two and ten years, slightly above the maximum target of 2.50 billion euro, recording yields above those recorded an auction earlier, while demand weakened as the future of Spain still uncertain.
The treasury auctioned as well 1.42 billion euros of 10-year bonds, producing an average yield of 5.743%, up from the previous of 5.33% recorded on April 4. Bid-to-Cover ratio retreated to 2.42 times from 2.96 times.
The French Government auctioned today almost 8 billion euros of bonds with different maturities, producing higher yields accompanied with strong demand, reflecting that investors have faith in France and don't doubt that the nation might fall any time soon unlike Spain which might follow other indebted nations into deep crisis.
France sold precisely 7.973 billion euros of bonds maturing in 2014, 2015 and 2017, within the targeted range of (7-8) billion euros. Starting with the short-term bonds, the treasury sold as much as 3.545 billion euros of debt maturing after two years, producing an average yield of 0.85% as demand was 2.286 times the quantity offered.
The second largest economy in the euro zone also sold 1.73 billion euros of 3-year bonds on an average yield of 1.06%, while the bid-to-cover ratio was 3.0 times the quantity offered. In addition, the nation auctioned 2.69 billion euros of bonds maturing in 2017, producing an average yield of 1.83%, while demand was 2.69 times the quantity offered.
The euro is mixed now and fluctuating against the greenback after surrendering all the gains recorded earlier during the session today, where market rebounded slightly on report the International Monetary Fund secured more than $320 billion of new funds to help in fighting the debt crisis in Europe; however, after the downbeat auctions the euro retreated gradually to end up below the opening level.
The European common currency trades now at $1.3116 against the dollar after recording the highest at $1.3164 and the lowest at $1.3105, noting that the EUR/USD pair started the session at $1.3121.
The U.S. dollar index (USDIX) rebounded sharply as well cutting the losses recorded against other majors as the earnings season is unexpectedly impressive, where more and more U.S. firms are reporting better than expected earnings the thing that indicates the recovery in the labor market is driven by the recovery in the business cycle and in the economic cycle in general.
The USDIX trades now with slight gains around 79.59 after reaching the highest at 79.60 and the lowest at 79.41, noting that the metal started the day at 79.57.