Bloomberg News

Euro Drops to Month Low Versus Yen on Italy Concern; Yen Rallies

November 16, 2011

Nov. 15 (Bloomberg) -- The euro fell to a one-month low against the yen and slumped versus the dollar on concern Italy’s new government will struggle to win enough support to prevent the region’s debt crisis from engulfing the nation.

The 17-nation currency slid below $1.35 as Italy’s 10-year yields surpassed the 7 percent threshold that prompted other nations to seek bailouts. The Swiss franc dropped versus the dollar after the central bank’s Vice Chairman Thomas Jordan said the currency remains “very strong.” The yen and dollar rose against major counterparts as German investor sentiment declined to a three-year low, encouraging demand for a refuge.

“Everyone is taking their cue from what is going on in Italian and Spanish yields,” said Paresh Upadhyaya, head of Americas G-10 currency strategy at Bank of America Corp. in New York. “Concern about the outlook for European growth affects the outlook for global growth and in turn helps the dollar.”

The euro depreciated 0.7 percent to 104.30 yen at 5 p.m. New York time, after dropping to 103.98 yen, the lowest level since Oct. 10. The shared currency slid 0.7 percent to $1.3540 after dropping below $1.35 for the first time since Nov. 10. The yen was little changed at 77.03 versus the dollar. Europe’s currency will fall below $1.30 by year-end and trade at $1.28 by the end of the first quarter, according to Upadhyaya.

Mario Monti, Italy’s prime minister designate, said at a Rome briefing that he is “convinced” the country can overcome the current crisis as he prepares to meet with President Giorgio Napolitano tomorrow to present his new government.

Dollar Boost

The dollar got a boost as Federal Reserve Bank of Dallas President Richard Fisher said he sees decreasing odds the central bank will need to ease policy further on signs the U.S. economy is poised for growth.

“I’m more comfortable now in terms of not -- this is me personally speaking -- not anticipating greater accommodation,” Fisher said yesterday in an interview at Bloomberg LP’s headquarters in New York. “The direction we’re moving in is positive.”

U.S. retail sales rose in October more than forecast, and manufacturing in the New York region unexpectedly expanded this month, reports showed today.

New Zealand

IntercontinentalExchange Inc.’s Dollar Index, used to track the greenback against the currencies of six major U.S. trading partners, increased 0.5 percent to 77.921. The gauge is weighted 57.6 percent to movements in the euro.

New Zealand’s dollar and South Africa’s rand were the worst performers against the U.S. currency among major counterparts as European turmoil sapped risk demand.

The rand fell to a three-week low, declining as much as 2.6 percent to 8.2171 per dollar. The euro region is the biggest trading partner for South Africa. The so-called kiwi dropped as much as 1.7 percent to 76.71 U.S. cents, the lowest level in more than a month.

The franc declined 0.8 percent to 91.50 centimes per dollar and was little changed at 1.23903 versus the euro after Jordan said yesterday that policy makers are ready to take further measures to counter risks to the economy from an overvalued currency. He declined to say whether the central bank would change the franc’s ceiling of 1.20 versus the euro.

Industry Plea

Hans Hess, president of the country’s industry group Swissmem, told reporters today in Bern that the central bank should raise the ceiling. Fair value, the measure for currencies using prices for similar goods and services in two countries, is 1.35 to 1.40 francs per euro.

“The Swiss National Bank just has more credibility because they’ve said they’ll do whatever it takes, and the market really believes them,” said Eric Viloria, senior currency strategist at Gain Capital Group LLC in New York. “You could see some more selling in Swiss francs throughout today.”

The Canadian dollar pared its drop versus its U.S. counterpart after a report showed factory sales rose for a third straight month in September, increasing twice as much as economists forecast. The loonie dropped 0.4 percent to C$1.0204 versus its U.S. counterpart after earlier falling 0.9 percent.

The cost for European banks to fund in dollars surged to a three-year high, with three-month cross-currency basis swaps falling to as much as 122 basis points below the euro interbank offered rate. The rate banks pay to convert euro payments into dollars was the most expensive since December 2008. A basis point is 0.01 percentage point.

Spain’s Offering

Spain raised 3.16 billion euros ($4.28 billion) from selling 12- and 18-month bills today, less than its maximum target of 3.5 billion euros. The average yield on the one-year securities climbed to 5.022 percent from 3.608 percent at the previous sale Oct. 18. Greek and Belgian borrowing costs also rose at auctions today.

Italian 10-year yields climbed as high as 7.07 percent after rising to a euro-era record of 7.48 percent on Nov. 9. The extra yield investors demand to hold the 10-year debt of Spain, France, Austria and Belgium instead of German bunds widened to the most since the euro was introduced in 1999.

The ZEW Center for European Economic Research said its index of German investor and analyst expectations, which aims to predict developments six months in advance, decreased to minus 55.2 this month, the lowest since October 2008.

The euro has declined 1.5 percent over the past six months, according to Bloomberg Correlation-Weighted Indexes, which track the currencies of 10 developed nations. The yen has gained 6.9 percent, and the dollar has increased 3.1 percent.

--With assistance from David Goodman in London, Klaus Wille in Zurich and Vivien Lou Chen in San Francisco. Editors: Dennis Fitzgerald, Dave Liedtka

To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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