By Deborah Levine and William L. Watts, MarketWatch
SAN FRANCISCO (MarketWatch) ? The U.S. dollar slipped Thursday as plentiful demand from investors at a Spanish debt auction indicated worries about the euro zone have eased.
Limiting the dollar?s losses, Japanese officials backpedaled on comments that arrested the yen?s decline of recent weeks.
The ICE dollar index /quotes/zigman/1652083 DXY -0.16% , which measures the U.S. unit against a basket of six major currencies, slipped to 79.691 from 79.807 in North American trade late Wednesday.
How markets will handle debt debate
Markets look ready to tangle with the coming debt ceiling debate and call the Republicans' bluff. Photo: Reuters
The WSJ Dollar Index /quotes/zigman/9625991 XX:BUXX -0.0063% , which measures the dollar against a slightly wider basket, rose 0.2% to 70.75.
The euro /quotes/zigman/4867933/sampled EURUSD -0.0186% rose to $1.3376, up from $1.3288.
Spain sold a total of 4.5 billion euros. Spanish bond yields turned up in the secondary market, with the 10-year yield /quotes/zigman/4869131/delayed ES:10YR_ESP +0.42% rising to 5.09% from 5.03% on Wednesday, according to FactSet.
The good auctions came amid reports that some Spanish banks are planning to pay back money borrowed from the European Central about a year ago ? funds which were used to buy government bonds, propping up those markets temporarily. Read: Spanish banks likely to start repaying ECB loans.
?Someone, somewhere seems to be happy to hold Spanish debt,? said Kathleen Brooks, research director at Forex.com. ?The markets are optimistic that the future will brighten up for Spain and other peripherals and growth will pick up later this year.?
She still warned that excessive optimism could yet undo the market.
The dollar briefly pared losses after a pair of U.S. economic reports came in better than expected. See: U.S. weekly jobless claims drop 37,000 See: U.S. housing starts jump 12.1% .
/conga/story/misc/investing.html 244654U.S. data is unlikely to materially change the dollar?s direction until its strong enough (or weak enough) to alter the Federal Reserve?s current easy monetary policy stance and bond-purchase operations, which are seen as devaluing the currency.
The Japanese yen took a big turn south against the dollar and euro, after Economics Minister Akira Amari said his remarks on the yen earlier this week, in which he warned about the dangers of an excessively weak currency, had been misinterpreted.
On Thursday, Amari told The Wall Street Journal that he still believes the currency market is ?in a phase of correcting from excessive yen strength.? Read: Japan minister says yen still correcting.
The dollar /quotes/zigman/4868099/sampled USDJPY -0.0456% erased the prior two days? decline and reclaimed its highest level since mid-2010, buying ?89.98 compared with ?88.43 on Wednesday. Analysts say it can still climb higher. Read: How high can the dollar climb against Japan?s yen?
The euro also rose versus the Japanese yen /quotes/zigman/4868097/sampled EURJPY -0.0619% to trade at ?119.43 versus ?117.49.
The British pound /quotes/zigman/4867886/sampled GBPUSD +0.0439% fell to $1.6003 from $1.6006.
The Australian dollar /quotes/zigman/4867876/sampled AUDUSD -0.0066% slipped after data showed the unemployment rate rose in December to 5.4%. Read: Australia?s December jobless rate ticks up to 5.4%.
The aussie bought $1.0543 from $1.0572 Wednesday.
The currency still trades like it?s overvalued, and may soon drift toward the bottom of its $1.03 to $1.06 range, said Kit Juckes, head of foreign exchange at Soci?t? G?n?rale.
?The rates market has been extremely divided in its view of how much more easing we can expect from the Reserve Bank of Australia, and indeed about the outlook for the economy as a whole,? he said. ?Iron ore prices have recovered and money is flowing into Asian assets and currencies with gusto.?
A lot will still have to do with the outlook for Asian economies that Australia exports to, especially China, said analysts at BMO Capital Markets.
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Deborah Levine is a MarketWatch reporter, based in San Francisco. Follow her on Twitter @dlevineMW. William L. Watts is MarketWatch's European bureau chief, based in Frankfurt. Follow him on Twitter @wlwatts.
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