Bloomberg News

Euro Falls on Rating Concern Before ECB, EU Meetings; Yen Gains

December 09, 2011

Dec. 8 (Bloomberg) -- The euro fell the most in two weeks against the yen on concern nations such as Germany and France will lose their AAA credit ratings if European leaders fail to agree a plan to curb the debt crisis this week.

The yen strengthened against all of its major counterparts as speculation the euro-area crisis will slow global growth spurred demand for the safety of Japan’s currency. The euro approached a nine-month low versus the pound before the European Central Bank announces its policy decision today and as regional leaders gather in Brussels to seek a resolution to the two-year old crisis. Australia’s dollar weakened after a report showed employers cut jobs for the first time in three months.

“Sentiment has turned a little negative” for the euro, said Jeremy Stretch, executive director of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “There’s concern that we may see a perpetuation of the muddle- along strategy from the European Union and the big landmark deal will once again prove to be elusive.”

The euro fell 0.6 percent to 103.53 yen at 12:14 p.m., the biggest intra-day decline since Nov. 23. The single currency dropped 0.2 percent to $1.3385. It weakened 0.2 percent to 85.18 U.K. pence after slipping to 84.86 on Nov. 10, the lowest since March 3. The yen gained 0.4 percent to 77.35 per dollar.

Rating Concern

Standard & Poor’s yesterday placed the European Union’s AAA long-term rating on “creditwatch negative” after a similar action on 15 of the 17 euro members. The company said on Dec. 5 it may lower the ratings of Germany and 14 other members of the euro due to “continuing disagreements” about how to tackle the sovereign-debt crisis. S&P said the ratings may be cut depending on the result of the two-day summit starting today.

ECB policy makers will cut the benchmark rate by a quarter percentage point to 1 percent today, according to the median estimate in a Bloomberg News survey. They may also loosen collateral criteria to give banks greater access to cash and offer longer-term loans, said three euro-area officials with knowledge of the deliberations. The Bank of England kept its key rate at a record-low 0.5 percent today.

The yen advanced the most against the South African rand and South Korean won as investors sought safer assets before this week’s announcements.

“The yen has continued to trade with a firmer tone as initial investor optimism heading into today’s ECB meeting and tomorrow’s EU leaders’ summit is beginning to fade,” Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, wrote in an e-mailed note. “The market is growing increasingly tired of rumors regarding the latest potential bailout package for the euro zone.”

Sarkozy, Merkel

French President Nicolas Sarkozy and German Chancellor Angela Merkel this week proposed amending European treaties to tighten rules on deficit spending and water down provisions demanding investor losses. In a letter to European Union President Herman Van Rompuy, the French and German leaders said they want a decision at this week’s summit so the steps can be ready by March 2012.

The euro may rebound against the dollar today even as the ECB cuts borrowing costs because the market has priced in the move, according to Morgan Stanley.

Investors should buy the euro on a so-called tactical basis if the currency rises above $1.3490, analysts at the bank wrote in an e-mailed report today. Investors should wait until after the ECB announces its decision before purchasing the currency as the central bank may cut interest rates by 50 basis points instead of the consensus prediction of 25 basis points, the analysts wrote.

Aussie Falls

The Australian dollar weakened from near a four-week high versus the yen after the statistics bureau said the number of people employed fell by 6,300 last month after rising by 16,800 the prior month. The median estimate in a Bloomberg survey was for a 10,000 gain.

“Full-time jobs dropped a lot” said Lee Wai Tuck, a strategist at Forecast Pte in Singapore. “This will trigger some concerns over the jobs market in Australia and, of course, the economy. The Aussie dropped.”

The Australian dollar declined 0.3 percent to 79.70 yen after rising to 80.52 yen on Dec. 2, the strongest since Nov. 9. It was little changed at $1.0295.

Japanese machinery orders, an indicator of capital spending, slipped 6.9 percent from a month earlier, the Cabinet Office said today. The median forecast of economists surveyed by Bloomberg was a 0.5 percent gain.

--With assistance from Anchalee Worrachate in London, Monami Yui in Tokyo and Candice Zachariahs in Sydney. Editors: Nicholas Reynolds, Matthew Brown

To contact the reporter on this story: Keith Jenkins in London at kjenkins3@bloomberg.net

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


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