Bloomberg News

Euro Falls Toward Week Low Before Europe Leaders Meet on Crisis

July 19, 2011

July 19 (Bloomberg) -- The euro fell toward its lowest level in a week against the dollar on concern European leaders will be unable to agree on steps to contain the region’s debt crisis at a summit this week.

The yen headed for a one-week high versus the euro before Spain and Greece sell as much as 5.75 billion euros ($8.1 billion) of bills today. Australia’s dollar pared earlier gains after minutes of the July policy meeting showed the Reserve Bank has scope to extend an interest-rate pause because risks posed by Europe’s debt crisis and a slower-than-forecast domestic recovery eased inflation concerns.

“These sovereign issues continue to move from one stumbling block to the next,” said Richard Grace, chief currency strategist and head of international economics in Sydney at Commonwealth Bank of Australia. “The euro is probably going to head back down and test $1.40 again.”

The euro declined to $1.4081 at 6:53 a.m. in London from $1.4112 in New York yesterday, when it reached $1.4014, the least since July 13. It slid to 111.29 yen from 111.55 in New York, where it touched 110.66, also the lowest level since July 13. The dollar fetched 79.03 yen from 79.04.

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.

Nowotny Comment

European Central Bank member Ewald Nowotny said in an interview with CNBC that it’s the central bank’s responsibility to decide whether or not to accept Greek debt as collateral in case rating agencies slap the country with a default rating.

Yields on Spanish and Greek bonds hit euro-era records yesterday. Spanish 10-year yields rose 25 basis points to 6.32 percent, taking the spread over German bunds to 367 basis points. Greek two-year yields surged 291 basis points to 36 percent. Italy’s 10-year yield increased 21 basis points to 5.97 percent.

“Europe’s debt problem is getting very serious,” said Kengo Suzuki, manager of the foreign bond department in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest listed bank. “We can’t really expect concrete measures to come out from the summit. That will likely continue weighing on the euro and accelerating flows into safe haven currencies.”

Spain will auction 4.5 billion euros in one-year and 18- month bills today, while Greece will sell 1.25 billion euros of three-month bills.

RBA Minutes

Gains in the Australian dollar were tempered after the minutes of the central bank’s July meeting said there was “more time” to assess inflation pressures in the South Pacific nation.

The Australian dollar fetched $1.0621 from $1.0607 yesterday, after rising to as much as $1.0651.

RBA Governor Glenn Stevens has kept the official cash rate unchanged since November 2010. At 4.75 percent, the rate is the highest among the world’s developed economies.

“The big thing in the minutes is they dropped the reference to need for tighter policy at some stage,” said Mitul Kotecha, head of global foreign-exchange strategy at Credit Agricole SA in Hong Kong. That’s “obviously playing negatively for the Aussie dollar.”

U.S. Housing

Demand for safe haven currencies such as the yen was limited before a report today forecast to show housing starts in the U.S. probably rose in June for a second month.

Construction began on 575,000 houses at an annual rate, up 2.7 percent from May, according to the median projection of economists surveyed by Bloomberg News. Purchases of previously owned homes, which make up about 95 percent of the market, climbed 1.9 percent in June from May’s six-month low to a 4.9 million annual rate, according to the median projection of economists surveyed by Bloomberg News before a National Association of Realtors’ report tomorrow.

“There’s enough on the economic calendar to provide potential reasons for the market to move out of this risk-averse phase that we’re in at the moment,” said Tim Waterer, a foreign exchange dealer at CMC Markets in Sydney. “Currencies like the euro and Aussie have found some support.”

Japanese Finance Minister Yoshihiko Noda said he will continue to watch markets carefully, spurring speculation officials may consider selling yen if it extends this month’s 1.9 percent gain versus the greenback. The yen’s recent moves have been one-sided, he said. Noda said he can’t comment on foreign-exchange levels or on intervention.

The yen climbed to 78.47 per dollar on July 14, the strongest since March 17, as concern Europe’s debt crisis is spreading boosted demand for refuge assets. Group of Seven nations jointly sold Japan’s currency on March 18 after the yen surged to a postwar record of 76.25 per dollar the previous day, threatening the nation’s recovery from the March 11 earthquake and tsunami.

--With assistance from Masaki Kondo in Singapore. Editors: Jonathan Annells, Naoto Hosoda

To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net;

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net


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