Bloomberg News

Euro Approaches 5-Week Low Versus Yen After Spain, France Sales

November 17, 2011

Nov. 17 (Bloomberg) -- The euro approached a five-week low against the yen as Spanish and French borrowing costs rose at auctions, fueling concern the region’s debt crisis is worsening.

The 17-nation currency earlier reached the weakest since Oct. 10 versus the dollar as Spain sold 3.56 billion euros ($4.8 billion) of a new 10-year bond at an average yield of almost 7 percent, the highest since the euro’s creation. The Dollar Index snapped three days of gains as economists said a U.S. report today will show first-time jobless claims rose last week. The Swiss franc fell as investor confidence fell in November.

“The euro is the weakest link among the major currencies and is bound to get weaker,” said Niels Christensen, chief currency strategist at Nordea Bank AB in Copenhagen. “There is so much uncertainty, not only in the southern European countries but it’s spreading now to countries that we saw as core countries.”

The euro dropped 0.1 percent to 103.65 yen at 7:01 a.m. in New York, after sliding to 103.41, matching the lowest since Oct. 10. The currency was little changed at $1.3454 after earlier falling to $1.3422. The yen gained 0.1 percent to 76.98 per dollar.

Spain’s Treasury sold bonds due in January 2022 at an average yield of 6.975 percent, up from 5.433 percent when it auctioned debt maturing in April 2021 last month. The nation was originally seeking to raise up to 4 billion euros from the sale. French borrowing costs rose to 2.82 percent at an auction of July 2016 notes, up from 2.31 percent at the previous offer of the securities on Oct. 20.

Forecast Cut

Spain’s finance minister, Elena Salgado, cut the country’s economic growth forecast, saying output will expand 0.8 percent this year. The new forecast is below the 1.3 percent target that Salgado had said since August would be hard to meet, and is in line with the estimate of 0.7 percent published by the European Commission last week.

“There’s still money to shift away from the euro area,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “In the short term, I’m not optimistic that there’ll be a solution that will satisfy investors.” The euro may fall to $1.30 by year-end, he said.

The Stoxx Europe 600 Index of shares slid for the third time in four days, losing 1.5 percent.

Dollar Index

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, dropped 0.2 percent to 78.248.

U.S. initial jobless claims increased to 395,000 last week from 390,000 the previous week, according to a Bloomberg News survey before the figures are released. Other U.S. reports today are forecast to show builders started work on fewer houses in October and manufacturing in the Philadelphia region expanded for a second month in November.

New York Federal Reserve President William Dudley, who said last month that it’s possible that policy makers “could do another round of quantitative easing,” is due to speak on the economy today. The Fed has conducted so-called quantitative easing twice, in which the central bank buys government debt to stimulate the economy through lower borrowing costs.

The Fed said in September that it would replace $400 billion in shorter-maturity debt holdings with longer-term securities in a bid to reduce borrowing costs and boost the world’s largest economy.

The franc declined for a fourth day versus the U.S. currency, losing 0.2 percent to 92.10 centimes per dollar. It dropped 0.2 percent 1.2409 per euro.

An index of investor and analyst expectations, which aims to predict economic developments six months in advance, fell to minus 64.3 from minus 54.4 in October, the ZEW Center for European Economic Research in Mannheim, Germany, and Zurich- based Credit Suisse Group AG said in an e-mailed statement.

--With assistance from Paul Dobson in London, Klaus Wille in Zurich and Masaki Kondo in Singapore. Editors: Nicholas Reynolds

To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net


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