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Euro Rises as Spanish Debt Sale Exceeds Maximum Target Before ECB Meets

Thursday, 12 January 2012 | 12:41
The euro strengthened the most in a week against the yen after Spain sold almost twice its maximum target of debt at an auction today, boosting demand for the 17- nation currency.
The euro rose versus all but two of its 16 major peers as Spain sold 9.98 billion euros ($12.7 billion) of notes, including a new three-year benchmark, versus the maximum target of 5 billion euros set for the sale. European Central Bank policy makers meeting today will leave the benchmark interest rate at a record low of 1 percent, according to a Bloomberg News survey. The pound declined before the Bank of England reviews monetary policy.
“The Spanish action results are good,” said Jane Foley, a senior currency strategist at Rabobank International in London. “Not only did the government manage to shift more paper than it had indicated but yields are lower on the three year,” which will help support the euro.
The euro rose 0.4 percent to 98.08 yen at 11:02 a.m. London time after advancing 0.5 percent, the biggest intraday gain since Jan. 3. It dropped to 97.28 yen on Jan. 9, the weakest since December 2000. The shared currency climbed 0.4 percent to $1.2757, after falling to $1.2662 yesterday, the lowest since September 2010. The dollar was little changed at 76.89 yen.
Spain sold 4.27 billion euros of three-year notes at an average yield of 3.384 percent, down from 5.187 percent at the previous auction of similar-dated securities on Dec. 1.
Italian borrowing costs also fell in its first debt auction of the year. The nation sold 8.5 billion euros of one-year bills at 2.735 percent, versus 5.952 percent at the prior auction of similar-maturity debt on Dec. 12. It also sold 136-day bills.
ECB Meeting
Only six of 53 economists in a Bloomberg News survey expect the ECB’s Governing Council to cut its key rate today to what would be a new record low. The central bank cut the main rate by a quarter percentage point for a second month on Dec. 8 and offered the region’s banks as much money as they needed for three years.
“We don’t expect a change in policy,” said Paul Robson, a senior foreign-exchange strategist at Royal Bank of Scotland Group Plc in London. “Next month is the month to concentrate on. The ECB have cut policy previously and also announced a string of new liquidity measures so I think they’ll be looking to see how that plays out.”
Industrial Production
Industrial production in the euro region declined by less than investors forecast in November, the European Union’s statistics office said today. Production fell 0.1 percent from October, when it dropped a revised 0.3 percent. Economists had forecast a decline of 0.3 percent, the median of 26 estimates in a Bloomberg News survey showed.
The pound weakened for a second day against the euro amid speculation the Bank of England will expand its bond-purchase program this year to spur growth.
The Bank’s Monetary Policy Committee will hold its key interest rate at a record low 0.5 percent today, according to all 53 analysts in a Bloomberg News survey, and keep its bond- buying target at 275 billion pounds, according to a separate Bloomberg survey.
The pound declined 0.3 percent to 83.16 pence per euro. Sterling was little changed at $1.5339, after falling to $1.5279, the weakest level since Oct. 6.
Source: Bloomberg
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