Euro Tumbles to 7-Week Low on Heightened European Debt Concern
July 11, 2011, 6:14 PM EDTBy Allison Bennett and Paul Dobson
July 11 (Bloomberg) -- The euro tumbled to a seven-week low against the dollar and slid versus the yen as rising Italian bond yields stoked concern Europe’s sovereign-debt crisis in deepening.
The euro traded near a record low against the Swiss franc as euro-area finance ministers vowed fresh steps to ensure debt sustainability for Greece, including enhancements to the main bailout fund. The yen rose against most its major counterparts and jumped to an almost three-week high against the dollar. Norway’s krone and Canada’s currency declined as crude oil fell.
“The euro crisis had originally been a key reason why people were gunning for a weaker euro in the first half to begin with, but it has taken that much longer to play out,” said David Mann, regional head of research for the Americas at Standard Chartered Plc in New York. “It’s going to become something that will play an increasing role in the second half.”
The 17-nation euro depreciated 1.7 percent to $1.4032 at 5:01 p.m. in New York, touching the lowest level since May 23. It slid 2.1 percent against the yen, to 112.61, and touched 112.35 yen, the least since March 18. The dollar weakened as much as 0.5 percent to 80.26 yen, after touching the lowest since June 22.
Euro-Area Meeting
The euro weakened 1.8 percent against the Swiss franc to 1.1724 as investors sought the safest European assets as euro- area finance ministers meet today.
In a statement in Brussels, the ministers said they “stand ready to adopt further measures that will improve the euro area’s systemic capacity to resist contagion risk, including enhancing the flexibility and scope of the European Financial Stability Facility, lengthening the maturities of the loans and lowering the interest rates.”
European Central Bank Executive Board member Lorenzo Bini Smaghi assured investors earlier that Greece and Italy are able to repay their public debts.
The yield on Italy’s 10-year bond rose as much as 31 basis points to 5.58 percent, driving the premium over German bunds to a euro-lifetime record of 283 basis points. The difference in yield, or spread, between Spanish and German 10-year securities also reached the highest in the euro era, widening to 323 basis points.
The seven-day relative strength index for the euro versus the dollar fell to 25.2, the lowest since May 13. Figures below 30 indicate a currency may have depreciated too quickly and may be poised for a reversal.
Dollar Strength
The dollar rose against all its major counterparts, excluding the franc and the yen as stocks and commodities slumped.
The best currency forecasters say the dollar’s more than 12 percent slide during the past year is coming to an end as Europe’s deepening debt crisis discourages bets against the world’s reserve currency.
Led by Schneider Foreign Exchange Ltd., the five most- accurate firms during the six quarters through June 30 as measured by Bloomberg see the dollar trading at $1.42 per euro on average by year-end, compared with $1.43 on July 8. Against the yen, they predict the greenback will rise to 83 from 80.64.
“Everyone is aware inside and outside of the euro area that these countries cannot bail themselves out of these debt burdens,” said Schneider’s Gallo in a Bloomberg Television interview with Betty Liu on “In the Loop.” “The bottom line is there is no way to ring fence this entirely the losses are going to have be swallowed.”
Stocks, Commodities
The Standard & Poor’s 500 Index fell 1.8 percent and the MSCI World Index declined 2.1 percent. The S&P GSCI index of raw materials slipped 0.7 percent.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the currency against those of six trading partners, advanced 1.1 percent to 76.001. Movements in the gauge are weighted 57.6 percent to the euro.
The Norwegian krone slid 2.1 percent to 5.5247 per dollar, after data showed Norway’s underlying inflation rate was 0.7 percent in June.
Canada’s dollar fell 0.6 percent to 96.85 cents per U.S. dollar, from 96.27. Crude for August delivery in New York fell as much as 2.1 percent to $94.14 a barrel.
China’s Yuan
The Australian dollar declined 0.9 percent to $1.0654 on speculation China, its largest trading partner, will increase efforts to tame inflation even as growth cools.
“The China thing is always there in the background,” said Tom Levinson, a foreign-exchange strategist at ING Bank NV in London. “Are they going to have to raise rates to such an extent that growth is choked off? Certainly at the margin it’s there and it’s negative for Australia and perhaps slightly broader as well.”
Chinese consumer prices increased 6.4 percent in June from a year earlier, the National Bureau of Statistics said on July 9, exceeding the 6.2 percent median estimate of economists surveyed by Bloomberg. The government will say on July 13 that gross domestic product expanded 9.3 percent in the second quarter from a year before, according to a separate survey, down from 9.7 percent the previous quarter.
The reference rate for China’s yuan was little changed at 6.4671.
Three chief executive officers of Chinese banks said in interviews in Hong Kong on July 6, they want a stronger and more freely convertible yuan to support their global expansion. They join Treasury Secretary Timothy F. Geithner as unlikely allies in his push for China to let its currency rise faster.
--With assistance from Chris Fournier in Halifax, Garth Theunissen in London and Catarina Saraiva in New York. Editors: Paul Cox, Dave Liedtka
To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net Paul Dobson in London at pdobson2@bloomberg.net.
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
