Bloomberg News

Euro Extends Decline as Greece Woes Raise Region’s Debt Costs

September 14, 2011

Sept. 14 (Bloomberg) -- The euro declined against the dollar and yen on concern Greece’s debt woes will raise borrowing costs for other countries in the region, including Spain, which is due to sell bonds tomorrow.

The euro weakened versus the yen for a fifth day after China’s Premier Wen Jiabao signaled developed nations should cut deficits and create jobs rather than relying on his country to bail out the world economy. The dollar held a two-day slide against Japan’s currency before data that may show U.S. retail sales growth moderated in August. Australia’s dollar dropped for a fifth day versus the greenback as Asian shares slid.

“Over the next week or two, the bias would be to the downside because you keep seeing a deterioration in sentiment,” said Mike Burrowes, a currency strategist at Bank of New Zealand Ltd. in Wellington. “That’s pressuring the euro lower.”

The euro fell 0.5 percent to 104.75 yen as of 8:23 a.m. in London from 105.25 in New York yesterday. It reached 103.90 on Sept. 12, the lowest since June 2001. The shared currency dropped 0.4 percent to $1.3625. The dollar was little changed at 76.87 yen from 76.96.

The MSCI Asia Pacific index of stocks slumped 1.9 percent, while the Stoxx Europe 600 Index declined 0.3 percent.

“Countries must first put their own houses in order,” Wen said today at the World Economic Forum in Dalian, China. He reiterated his message in June that China can offer “a helping hand” to Europe through investing there and called on the European Union and the U.S. to open their markets in return.

Bond Sales

Spain is scheduled to auction securities maturing in 2019 and 2020 tomorrow. Italy sold 3.9 billion euros ($5.3 billion) of five-year notes yesterday at an average yield of 5.6 percent, up from 4.93 percent at the previous auction. Demand dropped to 1.28 times the amount on offer, from 1.93 times.

“The bigger elephant in the room is really what’s happening in Italy and Spain where you’re seeing their bond yields rise and getting close to levels where potentially it becomes impossible for them to fund themselves in the market,” Bank of New Zealand’s Burrowes said.

The euro maintained losses after Moody’s Investors Service downgraded ratings for French banks Societe Generale SA and Credit Agricole SA.

The ratings company cut Societe Generale’s debt and deposit ratings by one notch to Aa3 from Aa2 and said it was extending its review of the bank’s C+ Bank Financial Strength rating. Moody’s downgraded Credit Agricole’s long-term ratings to Aa2 from Aa1 “on Greek exposures” and cut the bank’s BFSR rating to C from C+.

The euro has depreciated 1.3 percent in the past month, the second-worst performer tracked by Bloomberg Correlation-Weighted Currency indexes after the Swiss franc.

Papandreou Call

Greek Prime Minister George Papandreou holds a conference call with German Chancellor Angela Merkel and French President Nicolas Sarkozy today to discuss developments in his nation and the euro area.

Merkel, in a German radio interview broadcast yesterday, said that an “uncontrolled insolvency” would further roil markets spooked by the prospect of a Greek default. The euro region currently has no system for “orderly” insolvency until the permanent rescue fund is established in 2013, she said.

The so-called troika of the International Monetary Fund, European Central Bank and European Commission representatives will return to Greece this week to review the nation’s economy, the German chancellor said. Following the review the team will make a recommendation on the release of the sixth tranche of loans under a bailout secured in May of last year.

Retail Sales

The dollar headed lower against the yen before reports that may indicate the U.S. economy is slowing, boosting speculation the Federal Open Market Committee will add monetary stimulus at its Sept. 20-21 meeting.

Federal Reserve policy makers will meet for two days this month, rather than the single day originally scheduled, to “allow a fuller discussion” of the economy and the central bank’s possible response, according to Chairman Ben S. Bernanke.

U.S. advance retail sales rose 0.2 percent in August compared with a 0.5 percent advance in July, the median estimate of a Bloomberg News survey of economists showed ahead of Commerce Department figures today. A producer price index remained flat last month, after gaining 0.2 percent in July, according to a separate survey.

Australian’s currency weakened against most of its major peers after the statistics bureau released new methodology for calculating seasonally adjusted inflation that indicated the Reserve Bank of Australia’s core measures may have been lower last quarter.

“These are considered the RBA’s preferred measures of inflation and it’s something that may weigh on the Aussie as it heats up the argument that inflation is not such a significant issue now,” said Chris Weston, an institutional trader at IG Markets in Melbourne.

The so-called Aussie slid 0.8 percent to $1.0233, after earlier reaching $1.0187, the least since Aug. 11. It dropped 0.9 percent to 78.66 yen.

--Editors: Rocky Swift, Naoto Hosoda

To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

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


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