Bloomberg News

Euro Drops in Longest Losing Streak Since 2010 on Debt Turmoil

January 08, 2012

Jan. 7 (Bloomberg) -- The euro fell for a fifth week versus the dollar in its longest losing streak in almost two years on concern Europe’s debt crisis is worsening and as data showed the U.S. labor market is strengthening.

The 17-nation currency slid to a record low against the Australian dollar and traded at the weakest level in more than 11 years versus the yen as demand at bond auctions spurred concern European nations will struggle to sell debt. The pound rose to a 15-month high versus the euro before the European Central Bank meets on Jan. 12. Hungary’s forint tumbled and Fitch Ratings downgraded the country to junk.

“One of the factors driving the market right now is a general lack of demand for European assets,” said Shahab Jalinoos, a senior currency strategist in Stamford, Connecticut, at UBS AG. “There are enough sources of new bad news to keep the market adapting; all the bad news is not priced in yet.”

The euro fell 1.9 percent to $1.2717 yesterday in New York in its biggest five-day loss since Dec. 16. It hasn’t fallen for five straight weeks since February 2010. It touched $1.2698, its weakest level since Sept. 13, 2010. The shared currency depreciated 1.8 percent to 97.90 yen and reached 97.88 yen, the lowest since December 2000. The dollar was little changed at 76.97 yen.

It was the worst week for Europe’s common currency in four months. The euro lost 1.3 percent against nine developed-nation peers tracked by Bloomberg Correlation-Weighted Currency Indexes, the most since it dropped 1.9 percent in the five days ended Sept. 2.

Bets Against Euro

Futures traders increased their bets that the euro will decline against the dollar to a record high. The difference between wagers the shared currency would fall versus those that it would rise -- so-called net shorts -- surged to 138,909 in the week ended Jan. 3, according to the Commodity Futures Trading Commission.

Sterling reached its strongest versus the euro yesterday since Sept. 10, 2010, touching 82.39 pence. It gained 1.1 percent on the week. The pound slipped 0.8 percent to $1.5426.

The euro dropped as France sold 4.02 billion euros ($5.11 billion) of benchmark 10-year notes Jan. 5 at an average yield of 3.29 percent, compared with 3.18 percent at a sale on Dec. 1. The bid-to-cover ratio, the number of bids received for each unit of debt sold, fell to 1.64, from 3.05. Demand at a German auction of 10-year bonds a day earlier was lower than the five- year average. France, Greece, Germany, Italy and Spain are all scheduled to sell debt next week.

‘Significant Downside Risk’

“The market is very cognizant, and has been for quite some time, that there’s some very significant downside risk as far as the euro is concerned,” Alan Ruskin, global head of Group-of-10 foreign-exchange strategy at Deutsche Bank AG in New York, said Jan. 5 in an interview on Bloomberg Television’s “In the Loop” with Betty Liu. “Increasingly they’re putting their money where their thoughts are. You’re seeing the euro really trade quite weak against a host of currencies.”

France’s credit outlook was lowered by Fitch Ratings on Dec. 16 on the “heightened risk of contingent liabilities” from the escalating euro-region crisis. S&P is reviewing the top ratings of both France and Germany.

The ECB will leave its main refinancing rate at 1 percent next week after lowering it from 1.5 percent since November, according to a Bloomberg News survey.

Hungary’s forint slid to a record low of 324.24 per euro Jan. 5 before erasing a weekly loss as the government said it’s ready to discuss conditions for an International Monetary Fund loan. Fitch became the third rating company in two months to cut Hungary’s credit to junk, saying there still are doubts about the nation’s agreement to conditions for aid.

The forint ended the week at 314.35 per euro.

Yuan Weakens

The yuan had its first weekly decline in a month after the People’s Bank of China set the fixing 0.18 percent weaker on Jan. 5, the biggest reduction since Nov. 15, amid concern Europe’s debt crisis will cool demand for the nation’s goods.

China’s currency fell 0.3 percent to 6.3095, according to the China Foreign Exchange Trade System. It touched 6.2919 on Jan. 4, the strongest since the country unified official and market exchange rates at the end of 1993.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, increased 1.3 percent to 81.26.

The gauge rose yesterday as Labor Department data showed U.S. nonfarm payrolls increased by 200,000 jobs last month, compared with the median forecast in a Bloomberg News survey for a gain of 155,000. The jobless rate unexpectedly fell to 8.5 percent, the lowest since February 2009.

Beating Estimates

The economic performance of the U.S. is beating economists’ estimates, while those of other regions are trailing them. Citigroup Inc.’s Economic Surprise Index for the U.S., which measures whether data exceed or miss forecasts, rose to 91.90 yesterday, the highest since March. Its average for the past year is negative 3.5. The euro region’s Economic Surprise Index fell to negative 19.6, while Canada’s slid to negative 21.9.

Mexico’s peso was the top performer versus the dollar this week, climbing 1.4 percent to 13.7391. Brazil’s real gained 0.6 percent to 1.8566 per dollar, and New Zealand’s dollar appreciated 0.4 percent to 78.06 U.S. cents.

Australia’s dollar rallied to a record 80.51 euro cents yesterday. It gained for eight consecutive days versus the shared currency, the longest winning streak since December 2010. Against the greenback, the Aussie advanced 0.2 percent on the week to $1.0228.

--Editors: Greg Storey, Kenneth Pringle

To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; Catarina Saraiva in New York at asaraiva5@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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