EUR/USD

The euro traded down against the U.S. dollar Tuesday weighed by Spain’s long term borrowing costs, following a disappointing government debt auction, while hopes for progress on the region’s debt crisis at the European Summit faded. The euro gave up small early gains against the greenback upon Spain witnessing short-term borrowing costs rise sharply at an auction of government debt. Spain’s Treasury auctioned slightly more that the targeted amount of EUR 3 billion, selling EUR1.6 billion worth of three-month government bonds at an average yield of 2.36%, up sharply from 0.84% at a similar auction last month. Spain also sold EUR1.48 billion of six-month debt at an average yield of 3.23%, up from 1.73% in May. The spike in borrowing costs came following the mass downgrade of 28 Spanish banks by ratings agency Moody’s on Monday, after Spain’s government formally requested aid of up to EUR100 billion for its banks. Following the auction, the yield on Spanish 10-year bonds rose to 6.77%, re-approaching 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. Investors also remained nervous ahead of the upcoming EU summit, amid skepticism that leaders would make progress on greater fiscal integration and allowing the bloc's rescue funds to buy government debt.

GBP/USD

The pound trimmed gains against the U.S. dollar on Tuesday, after disappointing U.S. consumer confidence as concerns over rising borrowing costs in Italy and Spain and uncertainty over the outcome of this week’s European summit in Brussels continued to weigh. Industry data showed earlier that U.S. consumer confidence declined more-than-expected in June, falling for the fourth consecutive month and hitting the lowest level since January. Markets were also jittery amid doubts over whether an upcoming European Union summit will result in fresh measures to tackle the region’s debt crisis. Sterling rose to a three-day high against the dollar earlier, after Bank of England Governor Mervyn King said an interest rate cut would be less effective in stimulating the economy than more quantitative easing. In testimony to Parliament's Treasury Committee, King said the outlook for the U.K. economy had deteriorated in recent weeks as a result of the ongoing debt crisis in the euro zone. The comments came after official data showed that public sector net borrowing in the U.K. rose to GBP17.9 billion in May, up from GBP15.2 billion in the same month last year.

USD/JPY

The U.S. dollar edged lower against the yen on Tuesday, as investors remained cautious amid sustained euro zone debt concerns and as hopes for progress at this week European summit in Brussels began to fade. Markets were jittery ahead of the European Union summit due to begin on Thursday, amid skepticism that leaders would make progress on greater fiscal integration and allowing the bloc's rescue funds to buy government debt. a report by Gfk showed that its index of consumer climate in Germany rose unexpectedly in June, ticking up to 5.8 from a reading of 5.7 the previous month. Analysts had expected the index to remain unchanged at 5.7. Later in the day, the U.S. was to release industry data on house price inflation, followed by a report on consumer confidence.

USD/CAD

The U.S. dollar was slightly lower against its Canadian counterpart on Tuesday, but the pair remained in a narrow range ahead of a European Union summit later in the week. Investors remained jittery ahead of the upcoming EU summit on Thursday and Friday, amid skepticism that leaders would make progress on greater fiscal integration and allowing the bloc's rescue funds to buy government debt. Earlier in the day, Spain saw short-term borrowing costs rise sharply at an auction of government debt, following the downgrade of 28 Spanish banks by ratings agency Moody’s on Monday, after Spain’s government formally requested aid of up to EUR100 billion for its banks. In the U.S., the S&P/Case-Shiller home price index fell less-than-expected in April, but still declined for the 22nd consecutive month. Standard & Poor’s with Case-Shiller said its house price index fell at an annualized rate of 1.9% in April from a year earlier, better than expectations for a 2.5% drop. U.S. home prices in March fell by an unrevised 2.6%. Later Tuesday, the U.S. was to release a report on consumer confidence.

CL2Q

Crude oil futures moved lower during U.S. afternoon trade Tuesday,  as the Spanish debt auction disappointed investors amid sustained concerns over the debt crisis in the euro zone. Oil traders continued to monitor the path of Tropical Storm Debby, as well as rising geopolitical tension over Syria. Meanwhile, oil traders continued to monitor the path of Tropical Storm Debby, as it mostly avoided the Gulf of Mexico’s energy-producing area. Oil drillers in the Gulf of Mexico, including Conoco Phillips and British Petroleum, shut about 44% of output in the Gulf as a precaution ahead of Tropical Storm Debby. Energy traders track tropical storm activity in the event it disrupts production in the Gulf of Mexico, which is home to 20% of U.S. oil production. Prices found some support after NATO member states condemned Syria for its shooting down of a Turkish military jet last week and Ankara warned Damascus against any further military moves. Oil traders were also looking ahead to fresh weekly information on U.S. stockpiles of crude and refined products to gauge the strength of oil demand in the world’s largest oil consumer. The American Petroleum Institute will release its inventories report later in the day, while Wednesday’s government report could show crude stockpiles fell by 0.7 million barrels.

GOLD

Gold futures traded lower during U.S. afternoon trade Tuesday, as a climbing U.S. dollar depressed commodity prices amid growing concerns over the results of the upcoming European Summit. The greenback strengthened against the euro after Spain saw short-term borrowing costs double at an auction of government debt earlier in the day. Although gold appeal as a safe haven is boosted during times of economic uncertainty, the euro zone debt crisis has done little to bolster appetite for the precious metal in recent months.  A weakening euro and stronger dollar have weighed on gold instead, as the precious metal has been moving in tandem with riskier assets since hitting a record high of USD1,920 last September. Gold has lost some of its safe haven appeal to the dollar, U.S. Treasuries and German Bunds, partly as a strengthening dollar makes the metal less attractive to buyers holding other currencies.