Forexpros – The euro dropped to a two-week low against the yen on Tuesday, as rising borrowing costs in Italy and Spain coupled with concerns over the outcome of this week’s European Union summit weighed on demand for the single currency.
EUR/JPY hit 98.75 during European afternoon trade, the pair’s lowest since June 12; the pair subsequently consolidated at 98.97, dropping 0.65%.
The pair was likely to find support at 97.90, the low of June 6 and resistance at 100.09, the high of June 13.
The euro came under broad selling pressure after Spain saw short-term borrowing costs double at an auction of government debt.
Spain’s Treasury auctioned EUR1.6 billion worth of three-month government bonds, slightly more that the targeted amount, at an average yield of 2.36%, up sharply from 0.84% in May. Spain also sold EUR1.48 billion of six-month debt at an average yield of 3.23%, up from 1.73% in May.
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.
On Monday, Moody’s ratings agency on Monday downgraded 28 Spanish banks, citing concerns over Madrid’s ability to support its banking sector, which the agency said was vulnerable to further losses from Spain’s real-estate bust.
The announcement came after Spain’s government formally requested aid of up to EUR100 billion for its banks from its euro zone partners.
Sentiment on the euro also remained fragile amid doubts over whether an upcoming EU summit will result in fresh measures to tackle the region’s debt crisis.
The yen was also higher against the U.S. dollar with USD/JPY shedding 0.37%, to hit 79.38.
Also Tuesday, 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.
Later in the day, the U.S. was to release industry data on house price inflation, followed by a report on consumer confidence.
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