Euro Weakens Before Spanish Debt Sale; Yen, Won Fall on Death
December 19, 2011, 5:27 PM ESTBy Allison Bennett
Dec. 19 (Bloomberg) -- The euro fell for the first time in three days against the dollar before Spain sells securities tomorrow as European finance ministers attempt to address the region’s debt crisis.
The dollar rose against the yen after North Korea said leader Kim Jong Il died, spurring concern instability may increase in Asia. South Korea’s won tumbled to a two-month low as the nation boosted border and coastal defenses and considered raising alert levels for the military. Norway’s krone was the best performer against the euro as crude oil futures advanced for the first time in four days.
“We think that the toughest point for the euro crisis will be the first quarter and with that in mind it wouldn’t be a surprise that all those that need to sell euro are just getting out earlier rather than later,” said David Mann, regional head of research for the Americas at Standard Chartered in New York. “The immediate problem with North Korea is there are so many questions where the answer is completely unknowable.”
The euro weakened 0.4 percent to $1.2997 at 5:01 p.m. in New York. The dollar strengthened 0.4 percent to 78.04 yen. Europe’s common currency was little changed at 101.45 yen.
The won weakened 1.4 percent to 1,174.80, earlier touching 1,179.95, the lowest level since Oct. 7.
Annual View
Japan’s currency has advanced 4.7 percent in 2011 against nine developed-nation counterparts, according to Bloomberg Correlation-Weighted Indexes, as investors sought the safest investments amid Europe’s sovereign-debt crisis. The dollar is the next-best performer, strengthening 1.9 percent, while the euro has depreciated 0.9 percent.
Canada’s dollar rose after a report showed wholesale sales increased in October for a sixth straight month, led by rising shipments of motor vehicles and machinery. Statistics Canada reported sales rose 0.9 percent compared with a forecast gain of 0.1 percent.
Canada’s currency added 0.1 percent to C$1.0384 per U.S. dollar, after weakening to C$1.0415, the least since Dec. 14.
Norway’s krone advanced as oil, the nation’s largest export, recovered from a near six-week low. The currency gained 0.2 percent to 5.9468 versus the dollar and gained 0.5 percent versus the euro to trade at 7.7294.
Crude oil futures rose 0.3 percent to $94.08 a barrel in New York.
Oil Rises
Kim died of exhaustion two days ago, the official Korean Central News Agency said. His death ended his 17-year rule.
The yen dropped against most of its major counterparts amid concern a destabilization of the Korean peninsula will dim the outlook for Japan’s economy and security. Korea’s won fell against all its major counterparts.
“It’s the uncertainty that’s going to keep the Korean won on the defensive and perhaps most Asian currencies on the defensive,” Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York, said on Bloomberg Television’s “In The Loop.” “It also comes at a bad time because we’re dealing with Europe and now this.”
Bennenbroek said he expects the Korean won to weaken to 1,200 per U.S. dollar.
The 17-nation European currency has depreciated 2.9 percent versus the dollar this year and 6.6 percent against the yen. After falling to its weakest level against the dollar since January, the euro is poised to depreciate further as measures in the derivatives market show traders expect the blueprint unveiled by European leaders this month for a closer fiscal accord will fail to stem the declines.
Zone Risks
“The vast majority of investors remain wary of taking on risk on a strategic basis, with the travails of the euro zone and continuing policy discord and economic uncertainty in the region continuing to weigh on the single currency -- the euro remains the strongest net sold currency across the board and has now been steadily net sold for 14 consecutive trading sessions,” Samarjit Shankar, a managing director for the foreign-exchange group in Boston at Bank of New York Mellon, the world’s largest custodial bank, with more than $26 trillion in assets under administration wrote to clients today.
The six-month euro-dollar option butterfly, which measures the gap in implied volatility of out-of-the money, or virtually worthless, options and those that would likely produce a profit, was 0.55 percentage point today.
Spain’s Debt
Spain is due to auction three- and six-month securities tomorrow. Spain’s two-year note yields fell eight basis points, or 0.08 percentage point, to 3.38 percent.
Euro-area governments met a target for boosting their anti- crisis war chest with a pledge to provide 150 billion euros ($195 billion) to the International Monetary Fund.
Four non-euro users -- the Czech Republic, Denmark, Poland and Sweden -- will also pitch in, Luxembourg Prime Minister Jean-Claude Juncker said in an e-mailed statement after chairing a teleconference of finance ministers today.
The euro may drop to the weakest level in almost a year and a half after breaking through its low from October, according to Bank of America Corp.
The euro is poised to fall to as low as $1.2510, a level last reached in July 2010, after trading below $1.3146, the lowest reached in October, said MacNeil Curry, head of foreign- exchange and interest-rates technical strategy at Bank of America in New York. The shared currency needs to reach and break through the $1.2901-$1.2859 range before dropping to $1.2533 and then the lower level, he said.
--With assistance Stephanie Bodoni in Luxembourg and James G. Neuger in Brussels, Theophilos Argitis in Ottawa and Liz Capo McCormick and Catarina Saraiva in New York. Editors: Paul Cox, Kenneth Pringle
To contact the reporters 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
