Euro Declines Before Debt Summit This Week; Franc Touches Record
July 18, 2011, 5:30 PM EDTBy Catarina Saraiva
July 18 (Bloomberg) -- The euro touched a record low versus the Swiss franc and slid the most in almost a week against the dollar on concern European leaders won’t take concrete steps to contain the region’s debt crisis at a summit in three days.
The franc reached an all-time high versus the dollar on demand for safety after European Central Bank President Jean- Claude Trichet repeated his opposition to any restructuring of Greek debt. Italian and Spanish bond yields surged to euro-era records. The yen rallied against most of its major peers and gold surged to a new high. Sweden’s krona dropped to a seven- month low against the euro on speculation Europe’s debt turmoil will curb the Scandinavian nation’s growth.
“The euro’s drop seems to still all be predicated on the concern over the euro-zone debt crisis,” said Carl Forcheski, a director on the corporate currency sales desk at Societe Generale SA in New York. “Italian bond yields have traded higher. It’s peripheral euro-zone crisis, fears of contagion.”
The euro dropped as much as 1 percent to $1.4014 in the biggest intraday decline since July 12 before trading at $1.4112 at 5 p.m. in New York, compared with $1.4157 on July 15. The shared currency slid 0.4 percent to 111.55 yen and was unchanged at 1.1539 Swiss francs after tumbling to a record low 1.1374. The franc was 0.3 percent weaker against the dollar at 81.76 centimes after reaching 80.33, the strongest on record. The dollar dropped 0.1 percent to 79.04 yen.
Gold for immediate delivery gained as much as 1.1 percent to $1,607.90 an ounce. The Standard & Poor’s 500 Index decreased 0.8 percent.
Brussels Summit
Euro-area leaders will meet in Brussels on July 21 to discuss the “financial stability” of the region, European Union President Herman Van Rompuy said in an e-mailed statement July 15.
The second meeting of European leaders in a month follows a worsening of the crisis that drove bond yields to euro-era records for Europe’s most debt-laden nations.
Italian 10-year bond yields rose as much as 27 basis points, or 0.27 percentage point, to 6.027 percent today, the highest level since 1997 and surpassing last week’s 6.016 percent peak. Spanish 10-year yields increased as much as 30 basis points to 6.368 percent, also the highest since 1997.
“Now that Spain and Italy are brought into the crisis, Europe’s problem is much bigger than the risk of a Greek credit event,” Lena Komileva, head of Group of 10 strategy at Brown Brothers Harriman & Co. in London, said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “As long as Europe lacks a pro-growth strategy and peripheral governments continue to struggle finding themselves sustainable rates levels, the solvency crisis will spread.”
Euro Bets
Futures traders cut bets that the 17-nation euro will strengthen versus the dollar to the least since January as of July 12, according to data from the Washington-based Commodity Futures Trading Commission published July 15.
The franc earlier strengthened against the euro even after the Swiss National Bank highlighted last week its ability to resume sales of the currency to stem gains that threaten overseas sales at companies including Zurich-based ABB Ltd., the world’s largest maker of power-transmission gear.
Strategists boosted their fourth-quarter median forecasts for the franc against the dollar by the most of 51 pairs tracked by Bloomberg.
Outlook for Franc
“The Swiss franc is going to continue to hold and break new records for a while,” said John Doyle, a strategist at the currency trader Tempus Consulting Inc. in Washington. “It may get down to 80 versus the dollar, and at that point we may need to re-evaluate.”
Trichet said in the transcript of an interview with the Financial Times Deutschland that was released yesterday by the Frankfurt-based central bank that the euro is not in danger and remains “a highly credible currency.” Trichet reiterated that the ECB won’t accept as collateral bonds from a nation that defaults.
“If a country defaults, we can no longer accept as normal eligible collateral defaulted bonds issued by the government of that country,” Trichet said.
Sweden’s krona was weaker against all 16 of its major peers tracked by Bloomberg except South Africa’s rand amid speculation the debt crisis will cause growth to slow and dampen the prospects for future central bank interest rate increases.
The krona slid as much as 1 percent to 9.2789 per euro, the weakest level since Nov. 29, and depreciated 1 percent to 6.5549 versus the dollar. The rand slid 1.3 percent to 6.9748 against the dollar on concern Europe’s debt crisis will sap demand for emerging-market assets.
Dollar Index
IntercontinentalExchange Inc.’s Dollar Index advanced on demand for a refuge as U.S. politicians continued to negotiate an agreement to increase the $14.3 trillion debt ceiling. The gauge of the greenback against the currencies of six major U.S. trading partners rose 0.3 percent to 75.36.
U.S. Treasury Secretary Timothy F. Geithner said Republican leaders have ruled out the possibility of defaulting on the nation’s financial commitments.
“There’s no plausible way to run the country” for an extended period without raising the debt ceiling, Geithner told CNBC in an interview today. “That’s why you’ve seen the leadership of the Republican Party take that option off the table, take default off the table.”
Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell will push a revised budget plan this week aimed at allowing a debt-limit increase needed to avoid a government default as President Barack Obama presses for action in time for an Aug. 2 deadline.
--With assistance from Paul Dobson in London. Editors: Dennis Fitzgerald
To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
