Bloomberg News

Europe’s Single Currency May Unravel Before Action, UBS Says

November 27, 2011

Nov. 26 (Bloomberg) -- Europe’s monetary union may unravel sooner than the region’s leaders can mobilize to ensure the sovereign-debt crisis doesn’t overwhelm the currency, a UBS AG foreign exchange strategist wrote.

“Financial markets continue to move faster than politicians,” Mansoor Mohi-uddin, head of foreign exchange strategy for UBS, wrote in today’s note. Markets are starting to “price in the endgame” for the currency, he said.

European bonds slumped after Germany failed to draw bids for 35 percent of the offered amount at an auction of 10-year bunds this week, stoking concern the region’s debt crisis is infecting even the safest sovereign securities.

The dissolution of the currency would force Germany and other countries’ banks to take losses on their sovereign bond holdings and burden them with the need to raise even more capital, the Singapore-based analyst wrote.

German Chancellor Angela Merkel’s desire for closer fiscal union in Europe could weaken that country’s position if funds needed to be transferred to strengthen the monetary union, Mohi- uddin wrote.

He said next week’s meeting of European finance ministers and the auction of 8 billion euros worth of Italian bonds are expected to be a key measure of the euro’s strength.

The euro slid for a fourth week, dropping 2.1 percent to $1.3239 yesterday versus the dollar, the longest losing streak in 18 months. Also, the 17-nation currency fell for a third week against the yen as Belgium’s credit rating was downgraded. The currency fell 1.1 percent to 102.91 yen.

Dow Jones Newswires reported on the research note earlier.

--With assistance from Allison Bennett in New York, Paul Dobson and Anchalee Worrachate in London. Editors: Sylvia Wier, Andy Davidson

To contact the reporter on this story: Dan Hart in Washington at dahart@bloomberg.net

To contact the editor responsible for this story: Sylvia Wier at swier@bloomberg.net


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