Major Currency Pairs Analysis: June 12, 2013

European government bonds fell, pushing up borrowing costs for all euro-area sovereigns, as the Bank of Japan’s decision to leave monetary policy unchanged damped speculation central banks will increase debt purchases. Spanish 10-year yields climbed to the highest level in two months, as European stocks slumped. Portuguese and Irish bonds slid after European Central Bank President Mario Draghi told German television yesterday that debt buying will only be used to target prices that are out of line with fundamentals. German 10-year yields rose to the most in over three months, as a court began hearings on the ECB’s stimulus plan.
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GBP/USD
U.K. government bonds fell for a fourth day, pushing 10-year yields to the highest level in almost four months, as demand dropped at a 3.75 billion-pound ($5.84 billion) sale of new benchmark securities. Two-year gilt yields climbed above 0.5 percent for the first time since April 2012, as a government report indicated industrial production rose in April. Gilts have underperformed German bunds every day since June 4, when industry data showed the U.K.’s construction industry unexpectedly expanded last month. Investors bid for 1.52 times the amount of 10-year bonds sold today, down from a bid-to-cover ratio of 1.68 on April 9. The pound was little changed.
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USD/JPY
The yen rose the most in three years against the dollar. The Bank of Japan refrained from adding more stimulus measures that tend to weaken a currency. Japan’s currency snapped a two-day decline, as BoJ Governor Kuroda held back from extending the maturity of loans to banks as part of the monetary stimulus that pushed the yen down almost 10 percent this year. The currency extended gains versus the dollar as Treasuries rallied even after demand slumped at a Treasury auction of three-year notes. Australia’s dollar dropped to an almost three-year low after data showed home-loan approvals expanded by less than economists forecast.
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USD/CAD
The Canadian dollar rose to its highest point in almost three years versus its Australian counterpart as traders speculated the North American economy will lead global growth, Canada’s currency fluctuated against the U.S. dollar as oil dropped as much as 1.8 percent before a report forecast to show stockpiles fell last week in the U.S., the largest customer of Canadian crude. Canada posted its biggest jobs gain in a decade and the fastest pace of new home construction in 13-months in May, while stronger U.S. data has sent bond yields higher. The loonie gained versus the Aussie after Australia home-loan approvals grew at the slowest pace in three months.
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