The euro rallied on Monday, recovering from multi-month lows against the dollar and yen and a 1-1/2 year low against sterling in largely technical trading after it held key support levels ahead of a Spanish debt auction later this week. An early rise in Spanish government bond yields raised fresh concerns about the eurozone economic outlook and sent the euro down broadly, but its $1.2293 trough against the dollar was far above near-term support at $1.2955.
That prompted traders who had been betting against the euro to buy and reduce losses. As the buying momentum accelerated, it fed on itself, prompting more buying that either pushed the euro higher or pared its losses in most cross-trading pairs. But investors cautioned against reading too much into Monday's move, given the uncertainty about the ongoing European debt crisis and economic outlook for the eurozone.
"A further spike in Madrid borrowing costs would increase pressure on the European Central Bank to get involved to stem the tumult," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington. In late afternoon New York trading, the euro last traded up 0.5 percent against the dollar at $1.3137, after climbing as high as $1.3147.
Earlier, it dropped to a two-month trough of $1.2993 and below reported options barriers at $1.30. But it avoided stop-loss euro sell orders reported below $1.2970 and maintained near-term support at $1.2955, around the 61.8 percent retracement of the euro's climb from the January low to the February peak.
Spain's 10-year government bond yields rose above 6 percent for the first time this year as investors worried about the country's ability to contain its budget deficit, and the cost of insuring its debt hit a record high. That prompted the early euro selloff against all major currencies. Yet even as it sold, some strategists were forecasting the rapid appearance of buyers below $1.30, saying the euro was unlikely to test the January 2012 low this week.
News that ratings agency Fitch is not currently considering any action on Italy, the euro zone's third-largest economy and one of key concern because of its debt load, also helped the euro cut losses. Fitch said Italy's budget measures are "credible" and consistent with a gradual reduction of its debt.
The dollar fell against the yen, falling to 80.31 yen, its lowest since February 29. It was last at 80.46 yen, down 0.5 percent, trimming some losses after the US Commerce Department reported that retail sales rose 0.8 percent in March, more than expected, despite high gasoline prices. The euro also fell against the yen to a two-month low of 104.61 and was last at 105.70 yen, down 0.1 percent.
Against sterling, the euro fell to 82.05 pence, its lowest level since September 2010. But late in New York it had recovered to trade 0.2 percent higher at 82.65 pence. Commodity currencies were under pressure as well, with the Australian dollar falling for a second straight trading day. It was last at US $1.0356, while the New Zealand dollar was down 0.1 percent at US $0.8206.