Dollar Falls as Economic Data, Spain Auction Crimp Haven Demand

The dollar dropped against the majority of its most-traded counterparts as U.S. economic data showed a quickening recovery and European funding stress eased, damping demand for the safety of the U.S. currency.

The 17-nation euro rallied from an 11-month low against the dollar as Spain sold more than its maximum target at a debt auction and a report showed European manufacturing and service industries contracted less this month than economists forecast. The Swiss franc advanced after the central bank refrained from introducing additional measures to weaken the currency. The Brazilian real and the Australian dollar strengthened on improved demand for higher-returning assets.

"With the Spanish bond auction, yields are still high, but when you're able to sell all the bonds that they wanted to, that's a good sign," said John Doyle, a strategist in Washington at currency-trading firm Tempus Consulting Inc. "We followed up with fairly decent numbers here in the U.S. and it has kept with the narrative of a slightly risk-on kind of day."

The dollar fell 0.3 percent to $1.3020 per euro at 2:06 p.m. in New York, after falling as much as 0.5 percent. Yesterday it reached $1.2946, the strongest level since Jan. 11. The greenback fell 0.3 percent to 77.86 yen. The European currency was little changed at 101.38 yen.

Annual Changes

The dollar has gained 2.1 percent against nine developed- nation counterparts this year, according to Bloomberg Correlation-Weighted Indexes. The euro has dropped 0.6 percent and the yen strengthened 5.1 percent.

Brazil's real strengthened 1.2 percent to 1.8575 per dollar and the Aussie gained 0.3 percent to 99.37 U.S. cents.

The real's gain came as the central bank said it will lend dollars to help exporters, adding to the supply of the U.S. currency. The central bank will hold an auction to sell dollars with an agreement to repurchase them at a later date.

The euro rallied after the currency's 14-day relative strength index against the dollar fell to 29 yesterday, below the 30-level that some traders see as a sign a currency may be poised to reverse direction.

"We're having a natural short-covering bounceback after three or four days of very severe selloffs," said Boris Schlossberg, director of research at online currency trader GFT Forex in New York. A short is a bet the price of an asset will fall. "We had a very significant calming in European credit markets and the U.S. data was pretty good, which is underpinning the risk sentiment."

Spain's Debt

Spain sold 6.03 billion euros ($7.9 billion) of bonds today, compared with the maximum target of 3.5 billion euros the Treasury set for the auction. The yield on the security due in April 2021, which acts as the 10-year benchmark, was 5.545 percent, compared with 5.433 percent when it was last auctioned on Oct. 20. The nation also sold debt due in 2016 and 2020.

The euro also gained after London-based Markit Economics said its euro-area composite index based on a survey of purchasing managers in both services and manufacturing industries rose to 47.9 from 47 in November. Economists forecast a drop to 46.5, according to a Bloomberg News survey. A reading below 50 indicates contraction.

All of the 16 major currencies tracked by Bloomberg dropped against the dollar this week through yesterday, with the euro losing 3 percent.