Forexpros – The euro remained lower against the U.S. dollar on Tuesday, weighed by concerns over rising Spanish and Italian borrowing costs, as investors awaited a summit of European Union leaders later in the week.
EUR/USD hit 1.2482 during European afternoon trade, the session low; the pair subsequently consolidated at 1.2484, slipping 0.15%.
The pair was likely to find near-term support at 1.2470, Monday’s low and an almost two-week low and resistance at 1.2582, last Friday’s high.
The euro gave up small early gains against the greenback after Spain saw short-term borrowing costs double at an auction of government debt.
Spain’s Treasury auctioned slightly more that the targeted amount of EUR 3 billion, selling EUR1.6 billion worth of three-month government bonds at an average yield of 2.36%, up sharply from 0.84% at a similar auction last month.
Spain also sold EUR1.48 billion of six-month debt at an average yield of 3.23%, up from 1.73% in May.
The spike in borrowing costs came after rating’s agency Moody’s said that it had downgraded 28 Spanish banks on Monday, citing concerns over Madrid’s ability to support its banking sector, after Spain’s government formally requested aid of up to EUR100 billion for its banks.
Following the auction, the yield on Spanish 10-year bonds rose to 6.71%, nearing the critical 7% threshold, which is widely viewed as unsustainable in the long term.
Meanwhile, Italy’s Treasury sold EUR2.99 billion worth of two-year bonds at an average yield of 4.71%, the highest since December.
Sentiment on the euro also remained fragile amid doubts over whether an upcoming European Union summit will result in fresh measures to tackle the region’s debt crisis.
The euro remained somewhat supported after a report showed that the forward looking Gfk index of German consumer climate eased up to 5.8 for July, confounding expectations for a decline to 5.6. The index posted a reading of 5.7 in June.
The euro was also down against the pound and the yen, with EUR/GBP shedding 0.43% to hit 0.7993 and EUR/JPY losing 0.55% to trade at 99.06.
Later Tuesday, finance ministers from Germany, France, Italy and Spain were to hold talks ahead of the EU summit on Thursday and Friday.
Elsewhere, the U.S. was to release industry data on house price inflation, as well as a report on consumer confidence.
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