Bloomberg News

Euro Falls Below 100 Yen, 1st Time Since 2001; Aussie, Kiwi Rise

December 30, 2011

Dec. 30 (Bloomberg) -- The euro dropped below 100 yen for the first time since June 2001 in a sixth straight day of decline on concern Europe’s debt crisis will weigh on the region’s economic growth.

The 17-nation currency had its first back-to-back annual decreases versus the dollar in a decade. The Australian and New Zealand dollars rose as stocks rallied before reports next week forecast to show the U.S. economy is recovering, increasing demand for higher-yielding assets. China’s yuan climbed to a 17- year high on signs the central bank favors the currency’s appreciation to prevent capital outflows.

“You have the dismal growth outlook for the euro zone, that only adds another weight around the single currency,” said Joe Manimbo, a market analyst in Washington at Travelex Global Business Payments, a currency-exchange network. “Taking out that 100 level against the yen, that doesn’t bode too well for the euro going into next year.”

The euro fell 1 percent to 99.66 yen at 5 p.m. in New York after dropping to 99.51 yen, the lowest level since December 2000. The shared currency was little changed at $1.2961. The yen gained 0.9 percent to 76.91 per dollar after reaching 76.89, the strongest since Nov. 22.

Euro Numbers

The shared European currency was the worst performer among 10 developed-nation currencies this year, declining 2 percent, according to Bloomberg Correlation-Weighted Currency Indexes. The dollar advanced 1.1 percent and the yen gained 5.5 percent.

South Africa’s rand declined 18 percent against the dollar in 2011, the most of the U.S. currency’s major peers, according to Bloomberg data, followed by Mexico’s peso, with an 11.5 percent loss. The yen has advanced 5.5 percent for the largest gain against the greenback.

The Australian dollar appreciated 0.7 percent to $1.0209 and the New Zealand currency advanced 0.8 percent to 77.72 U.S. cents as U.S. economic prospects encouraged risk.

The MSCI World Index of shares climbed 0.4 percent, and the Standard & Poor’s 500 Index fell 0.4 percent.

Europe’s shared currency may weaken to 99 yen in the first quarter of 2012, according to the median forecasts of 35 analysts in a Bloomberg News survey. The shared currency will weaken to $1.28 in the second quarter of next year, according to a separate survey of 41 analysts.

Summit Failures

Two years of summits have failed to contain a European debt crisis that has led to bailouts of Greece, Ireland and Portugal and now threatens Italy and Spain.

French President Nicolas Sarkozy will go to Berlin on Jan. 9 to resume talks with German Chancellor Angela Merkel to end the turmoil, according to an official familiar with the matter. The leaders aim to complete revisions to Europe’s fiscal rulebook by March, following decisions made at a Dec. 9 summit, and are reassessing plans to cap the overall lending of their permanent rescue facility at 500 billion euros ($649 billion).

“There’s fatigue in the sense that the euro-zone problems -- we thought they’d be fixed partially by now, but obviously they’re not,” said Brian Kim, a currency strategist in Stamford, Connecticut, at Royal Bank of Scotland Group Plc.

Futures traders increased their bets that the euro will drop against the dollar to a record high, figures from the Washington-based Commodity Futures Trading Commission show.

Futures Positions

The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 127,879 in the week ended Dec. 27, compared with net shorts of 113,697 a week earlier. That’s the largest amount since the common currency’s inception in 1999.

A gauge of euro-region manufacturing was 46.9 in December from 46.4 the previous month, according to economists surveyed by Bloomberg News before Markit Economics releases the data Jan. 2. A reading below 50 indicates contraction.

Spain’s budget deficit will reach 8 percent of gross domestic product this year, more than the previous government’s forecast of 6 percent, government spokeswoman Soraya Saenz de Santamaria said at a press conference in Madrid.

Prime Minister Mariano Rajoy’s government will cut spending by 8.9 billion euros in the first quarter and raise taxes. The yield on Spain’s 10-year benchmark bond fell eight basis points to 5.094 percent.

The U.S. dollar’s share of global foreign-exchange reserves climbed in the third quarter to the highest since late 2010, while holdings of euros declined to a three-year low, International Monetary Fund data show.

Reserve Holdings

The U.S. currency’s portion rose to 61.7 percent in the period ended Sept. 30, the highest since the last three months of 2010, from 60.3 percent in the prior quarter, according to data from the Washington-based IMF quarterly data. The share of euros fell to 25.7 percent, the lowest since July through September in 2008.

The Institute for Supply Management’s U.S. factory index rose to 53.2 in December from 52.7 in the previous month, according to the median forecast in a Bloomberg News survey before a Jan. 3 report. Readings above 50 indicate expansion. U.S. growth will quicken to 2.1 percent in 2012 from 1.8 percent this year, according to a separate Bloomberg News survey.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, fell 0.3 percent to 80.204. The measure rose 1.6 percent this year after appreciating 1.3 percent last year, the first time it’s gained two years in a row since 2001.

Riskier assets will rise “if we can confirm that the U.S. economy is on a recovery path from the economic data next week,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp., a currency margin company.

China Currency

The yuan advanced for a third day as the central bank set its reference rate 0.2 percent stronger at 6.3009 against the greenback, the highest level since a dollar peg ended in 2005.

Hong Lei, a spokesman for the foreign ministry, said on Dec. 28 that China will continue to push for exchange-rate flexibility. Chinese manufacturing shrank less this month than in November, data showed today.

“The fixing may break through the key 6.3 level on the first trading day after the holiday,” following the spot rate, said Liu Dongliang, a senior analyst in Shenzhen at China Merchants Bank Co. “The yuan may appreciate about 3 percent at most next year.”

The yuan gained as much as 0.4 percent to 6.2940 per dollar, the strongest since the country unified official and market exchange rates at the end of 1993.

The Turkish lira strengthened the most since March 2009 against the dollar after the nation’s central bank said it’s selling dollars for liras in the market due to “unhealthy pricing in foreign exchange rates.” It made the comments in an e-mailed statement.

The lira surged as much as 3.1 percent to 1.8575 per dollar before gaining 1.4 percent to 1.8909.

--With assistance from 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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