MarketWatch by Deborah Levine and Sara Sjolin,
NEW YORK (MarketWatch) — The euro recovered from an almost two-year low against the dollar Thursday as pressure eased on Spain and investors moved back into riskier assets.
The ICE dollar index DXY -0.09% , which tracks the greenback’s performance against a basket of six major currencies, declined to 82.881 from 83.053 late Wednesday.
After trading above $1.24 for much of the European session, the euro EURUSD +0.12% lately traded at $1.2395, versus $1.2373 in North American trade late Wednesday.
Concerns over the health of the Spanish banking system pushes Hong Kong’s stock index down, erasing almost all of the benchmark’s 2012 gains.
The shared European currency dropped to its lowest level since June 2010 in the prior trading day, as surging Spanish bond yields boosted euro-zone concerns.
For the month, the euro has dropped 6.4% against the dollar, its worst performance since September.
Analysts have also noted that traders are heavily positioned against the euro and may unwind some of those bets to book profits.
It’s natural to see “some area-covering short positions after such extensive losses on the euro,” Simon Smith, chief economist at FxPro, said in emailed comments
“This is combined with the fact that today is month-end and this has provided some fairly erratic and dramatic moves in currencies and other asset classes so far this year, as investors adjust positions, liquidate assets and rebalance to benchmarks,” he said.
The dollar index jumped 5.2% this month, its best since September.
Illustrating a better mood in Europe, yields on 10-year Spanish government bondsES:10YR_ESP -2.30% fell 16.1 basis points to 6.537%, after climbing closer to the keenly watched 7% level on Wednesday.
“Some are taking comfort in more positive noises regarding the possibility of using the ESM [the European Stability Mechanism] to recapitalize banks and you can see the impact of that on Spanish yields,” Smith said.
Among other major currency pairs, the British pound GBPUSD -0.25% strengthened to $1.5493 from $1.5640.
Sterling has dropped 4.6% against the greenback this month.
Against the Japanese yen, the dollar USDJPY -0.76% slipped to ¥78.58 from ¥79.09.
The dollar has lost 1.6% versus the yen in May.