Bloomberg News

Euro Weakens After Italy Auction; Dollar, Brazilian Real Advance

November 25, 2011

Nov. 25 (Bloomberg) -- The euro touched a seven-week low against the dollar, falling for a fourth week, as Italian borrowing costs jumped to the highest level since 1997, adding to speculation Europe’s sovereign-debt crisis is spreading.

Brazil’s real rose against all of its 16 most-traded peers on speculation the nation’s central bank won’t make deep interest-rate cuts. Hungary’s forint sank to a 17-month low versus the greenback a day after Moody’s Investors Service downgraded the nation’s credit rating to junk. Standard & Poor’s cut Belgium’s credit rating.

“This crisis isn’t specific to the periphery any more, and there is this constant reminder that officials don’t have any real solution on the table,” said Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage. “There’s no solution at this point to what is happening, and that is going to continue to play out in a weaker euro.”

The euro dropped 0.8 percent to $1.3239 at 5 p.m. in New York and touched $1.3212, the weakest since Oct. 4. It declined 2.1 percent against the dollar for the week. The 17-nation currency was little changed at 102.91 yen and depreciated 1.1 percent for the week. The dollar rose 0.8 percent to 77.73 yen.

The shared currency weakened even after German Finance Minister Wolfgang Schaeuble told reporters in Berlin that provisions for private-sector losses under Europe’s planned permanent rescue fund may be adjusted. Bondholders were persuaded last month to accept a 50 percent loss on Greek debt holdings as part of an interim effort.

‘Stalling and Waiting’

“Everybody understands how severe the situation has become, and stalling and waiting is not going to solve it,” said Fabian Eliasson, head of U.S. currency sales at Mizuho Financial Group Inc. in New York. “The euro could fall below $1.30 as soon as next week.”

Belgium had its credit rating lowered one step to AA by S&P, which said bank guarantees, political instability and slowing economic growth will make it difficult to reduce the nation’s debt load. The action by S&P is the first downgrade for Belgium in almost 13 years.

Hungary’s forint depreciated as much as 2.5 percent to 239.85 per dollar, the weakest level since June 2010, before trading at 237.65, down 1.5 percent. It retreated 0.7 percent against the euro to 314.35.

Hungarian Rating

Moody’s lowered Hungary’s credit rating following 15 years at investment grade after Prime Minister Viktor Orban reversed a policy of shunning the International Monetary Fund to request assistance, while insisting he doesn’t want conditions attached to any new credit line.

The cost for European banks to fund in dollars reached a three-year high. Three-month cross currency basis swaps, the rate banks pay to convert euro payments into dollars, fell as much as 1.61 percentage points below the euro interbank offered rate, the most expensive level on an intraday basis since October 2008, data compiled by Bloomberg show.

Options traders are betting on more euro weakness. The three-month so-called 25-delta risk reversal rate against the dollar was at minus 3.91 percent, signaling greater demand for euro puts that give the right to sell the currency versus calls. The rate was at minus 4.39 percent on Nov. 17, the most since at least 2003 based on data compiled by Bloomberg.

Assets are shifting out of the euro zone “once and for all,” and that should support the U.S. dollar, said Hans- Guenter Redeker, head of foreign-exchange strategy at Morgan Stanley in London. He spoke in a radio interview on “Bloomberg Surveillance” with Bloomberg’s Ken Prewitt and Tom Keene.

Forecasts Maintained

Strategists have maintained predictions throughout November that the euro will remain between $1.35 and $1.36 by year-end, according to 45 economists in a Bloomberg News Survey. The shared currency will trade at 104 yen at the end of December, according to 34 forecasters, unchanged since Oct. 7.

Italy sold 8 billion euros ($10.6 billion) of 183-day bills at a rate of 6.504 percent, the highest since August 1997 and up from 3.535 percent at an Oct. 26 sale. Demand dropped to 1.47 times the amount on offer, from 1.57 times last month.

“We had an Italian bond auction which went not so well,” said Hidetoshi Honda, a currency strategist at Mizuho Corporate Bank Ltd. in London, in a telephone interview. “The European sovereign-debt situation hasn’t shown any improvement.”

The Dollar Index gained for a third day on stronger demand for safer assets. The gauge, which IntercontinentalExchange Inc. uses to track the greenback against currencies of six major U.S. trading partners, advanced 0.7 percent to 79.611 and touched 79.702, the highest level since Oct. 4.

Swiss Franc

The Swiss franc extended its fourth weekly decline versus the dollar, the longest losing streak since June 2010. It slid 1.1 percent for the day and fell 1.4 percent for the week to 93 centimes to the greenback. The franc also fell this week versus the euro. It traded at 1.2319 after losing 0.6 percent for the week and gaining 0.4 percent for the day.

Switzerland’s central bank set a ceiling of 1.20 francs per euro Sept. 6 to stem franc gains, which were hurting exporters.

Brazil’s real rose for the first time in nine days after central-bank President Alexandre Tombini reiterated a policy of “moderate” interest-rate cuts, spurring traders to pare bets on deeper reductions. It gained 0.3 percent to 1.8917 per dollar after appreciating earlier as much as 1.2 percent.

Currency moves may be exaggerated by smaller-than-usual volumes as many traders probably took holidays today after U.S. Thanksgiving yesterday, Niels Christensen, chief currency strategist at Nordea Bank AB in Copenhagen said.

--With assistance from Kim McLaughlin in Stockholm, Lukanyo Mnyanda in Edinburgh, Scott Hamilton in London, Kyoungwha Kim in Beijing and Zoltan Simon and Andras Gergely in Budapest. Editors: Greg Storey, Kenneth Pringle

To contact the reporter on this story: Allison Bennett in New York at

To contact the editor responsible for this story: Robert Burgess at

The Aging of Abercrombie & Fitch
blog comments powered by Disqus