Bloomberg News

Euro Trades at Almost 11-Month Low Amid Debt-Crisis Concern

December 27, 2011

Dec. 27 (Bloomberg) -- The euro traded at almost its lowest level since January against the dollar as concern lingered that Europe’s debt crisis will slow regional economic growth.

The 17-nation currency fluctuated before Italy sells bills and bonds tomorrow. The Swiss franc and the yen also appreciated against the dollar as U.S. consumer confidence gained more than forecast this month. South Africa’s rand and the Swedish krona gained against the U.S. currency as stocks and commodities rose.

“The European peripheral bond markets are still looking quite fragile and we’ll be watching that,” said Alan Ruskin, global head of Group of 10 foreign-exchange strategy at Deutsche Bank AG in New York. “People are going to be quite cautious in terms of trading events. It’s going to be a quiet week.”

The euro was little changed at $1.3071 at 5 p.m. in New York. It dropped to $1.2946 on Dec. 14, the lowest level since Jan. 11. The common currency was also little changed at 101.80 yen. The dollar fell 0.1 percent to 77.88 yen.

Implied volatility for the currencies of the Group of Seven nations dropped to 11.97 percent today, according to a JPMorgan Chase & Co. index. It reached a high this year of 15.77 percent in September.

Annual View

The shared currency has dropped 2.8 percent this month against the dollar and 2.4 percent this year. It has lost 1.3 percent this year against its nine developed-nation counterparts, according to Bloomberg Correlation-Weighted Currency Indexes. The dollar has gained 0.9 percent in the measure and the yen rose the most among the currencies, appreciating 3.9 percent.

The South African rand rose 0.2 percent to 8.1418 per dollar. The krona added 0.4 percent to 6.8529 per dollar.

The Standard & Poor’s 500 Index was little changed and the Thomson Reuters/Jefferies CRB Index of raw materials advanced 0.7 percent.

Italy is scheduled to sell 9 billion euros ($11.8 billion) of 179-day bills and as much as 2.5 billion euros of zero-coupon 2013 securities tomorrow. It will auction debt due in 2014, 2018, 2021 and 2022 the following day.

Ten-year bond yields in Italy advanced six basis points, or 0.06 percentage point, to 7.04 percent, above the 7 percent level that spurred Greece, Ireland and Portugal to seek bailouts.

European Issues

“The major theme going into 2012 is going to be the euro zone still,” said Mark McCormick, a currency strategist at Brown Brothers Harriman & Co. in New York. “There’s going to be some large bond supplies coming from some of the periphery countries, Italy and Spain in particular, and that’s going to be the focus.”

Confidence among U.S. consumers rose in December to the highest level in eight months as an improving job market helped regain all the ground lost following the mid-year government budget battle and credit-rating downgrade.

The Conference Board’s index increased to 64.5, exceeding all estimates in a Bloomberg News survey and the highest since April, from a revised 55.2 reading in November, figures from the New York-based private research group showed today. The measure averaged 53.7 during the recession that ended in June 2009.

Growth Story

“The front story of 2012 is going to be whether U.S. growth can sustain itself,” Boris Schlossberg, director of research at online currency trader GFT Forex in New York, said in an interview with Scarlet Fu on Bloomberg Television’s “InBusiness with Margaret Brennan.” “Dollar-yen is very much reflective of this uncertainty. If we do get conviction, if the U.S. economy starts to really perform well in the first half of the year, it’s going to clear 80, possibly even go to 85.”

The dollar will appreciate to 80 yen by the fourth quarter of 2012, according to the median estimate of 41 currency strategists in a Bloomberg News survey.

A “few” Bank of Japan board members said financial-market turmoil from the European debt crisis and the yen’s appreciation were increasing risks for growth, according to a record of last month’s board meeting released today.

The yen tends to gain during periods of financial stress as Japan’s export-reliant economy doesn’t need foreign capital to balance current accounts -- the broadest measure of trade. The currency has strengthened against all 16 of its most-traded peers this year, rising 4.2 percent against the dollar and 6.7 percent versus the euro.

Yen Moves

Japanese officials sold at least 14.3 trillion yen this year to stem gains that cut profits for exporters from Toyota Motor Corp. to Nintendo Co., and Finance Minister Jun Azumi has pledged more action. Intervention in 2012 may fail again as financial turmoil attracts investors to the world’s third-most traded currency for its low volatility.

Spain’s Economy and Competition Minister Luis de Guindos said yesterday in Madrid the nation’s economy has suffered a “relapse” and will contract as the People’s Party takes over the nation’s finances from the Socialists. “The next two quarters aren’t going to be easy,” he said.

The Obama administration declined to brand China a currency manipulator while saying appreciation of the yuan is insufficient and pledging to push for more “flexibility” in the currency.

“Over the past decade, China has resisted very strong market pressures” for appreciation of the yuan, the Treasury Department said today in a report to Congress on foreign- exchange markets. “China’s real effective exchange rate has exhibited persistent and substantial undervaluation, although the estimated range of misalignment has narrowed over the course of the past 18 months.”

The report, originally due Oct. 15, follows the administration’s push for a stronger yuan. President Barack Obama said last month that “enough is enough” on what the U.S. views as China moving too slowly to make changes in its economy.

--With assistance from Lucy Meakin in London and Kristine Aquino in Singapore. Editors: Paul Cox, Kenneth Pringle

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net


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