Bloomberg News

Euro Touches 11-Year Low Versus Yen Before Merkel, Sarkozy Meet

January 09, 2012

Jan. 9 (Bloomberg) -- The euro touched an 11-year low against the yen before the German and French leaders meet amid signs Europe’s sovereign-debt crisis is damping the region’s prospects for growth.

The 17-nation euro traded 0.4 percent from the least in nearly 16 months versus the dollar ahead of a report today forecast to show industrial production in Germany, Europe’s biggest economy, declined in November. Australia’s currency dropped after a report showed retail sales unexpectedly stagnated in November. The Philippine peso fell for a third day before a report on exports.

“We’re going to see more ongoing political noise and that’s really just a distraction from the bigger driver of the euro, which is the relatively weak growth outlook,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “As long as European growth underwhelms, the euro will continue to underperform the U.S. dollar, yen and probably also the rest of the major currencies.”

The euro fell 0.1 percent to 97.83 yen as of 6:48 a.m. in London after dropping to 97.28, the least since December 2000. The shared currency was little changed at $1.2718 and earlier reached $1.2666, its weakest level since September 2010. The dollar traded at 76.93 yen from 76.97. The Australian currency lost 0.4 percent to $1.0187.

Japan’s markets are closed today for a public holiday.

Merkel, Sarkozy Meeting

German Chancellor Angela Merkel and French President Nicolas Sarkozy meet in Berlin today to flesh out a new rulebook for fiscal discipline negotiated at a Dec. 9 summit that seeks to create a “fiscal compact” for the 17-member euro area. The talks will be followed by a joint press conference.

Spain is scheduled to sell bonds due in 2015 and 2016 on Jan. 12. Italy will auction securities on the same day and on Jan. 13. Spain’s 10-year bond yield climbed seven basis points, or 0.07 percentage point, to 5.71 percent on Jan. 6, while the rate on similar-maturity Italian debt gained four basis points to 7.13 percent, above the 7 percent threshold that led Greece, Portugal and Ireland to seek bailouts.

German industrial production probably dropped 0.5 percent in November after an 0.8 percent increase the previous month, the median estimate of economists surveyed by Bloomberg News showed before the figures are released today. That would be the first slide since September.

‘Steady Underperformance’

“There is legitimate concern over the path to sustainable sovereign debt levels,” Emma Lawson, a currency strategist at National Australia Bank Ltd. in Sydney, wrote in a report today. “With the U.S. data improving, and the European numbers still soft, the euro is likely to continue its steady underperformance.”

The dollar gained 0.8 percent in the past week, the second- best performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.

Figures from the Labor Department on Jan. 6 showed payrolls in the U.S. climbed by 200,000 last month following a revised 100,000 gain in November. The jobless rate unexpectedly fell to 8.5 percent, the lowest level since February 2009.

Confidence among U.S. small companies rose in December for a fourth month, economists in a Bloomberg News poll predicted before tomorrow’s report. The National Federation of Independent Business’s index probably climbed to 94, the highest level since February 2011, from November’s 92, according to the survey’s median forecast.

‘Fundamental Shift’

“The correlation between good U.S. data equaling a weak dollar is beginning to break down now that we’re seeing signs of a more sustained recovery in the U.S.,” said Bank of New Zealand’s Jones. “There’s a clear fundamental shift in favor of the U.S. dollar.”

Alcoa Inc., the largest U.S. aluminum producer, plans to release results today after markets close, the first company in the Dow Jones Industrial Average to report for the quarter. The Dow rose 5.5 percent last year, while the Standard & Poor’s 500 was little changed. The Stoxx Europe 600 Index fell 11 percent and the MSCI Asia Pacific Index plunged 17 percent in 2011.

The Australian dollar weakened after a report from the statistics bureau showed retail sales were unchanged in November. Economists surveyed by Bloomberg had predicted a gain of 0.4 percent.

“The past six months have been an important reminder that small open economies such as Australia are not immune to the broader global business cycle,” Robert Mead, the head of portfolio management in Australia at Pimco, manager of the world’s biggest bond fund, wrote in an e-mailed report today. Pimco predicts further interest-rate cuts from the Reserve Bank of Australia this year.

The Philippine peso declined for a third day before a government report tomorrow that may show overseas shipments dropped 10 percent in November from a year earlier after a 14.6 percent decrease the previous month, according to a Bloomberg survey.

The peso fell 0.2 percent to 44.220 per dollar, according to Tullett Prebon Plc.

--With assistance from Masaki Kondo in Singapore. Editors: Garfield Reynolds, Benjamin Purvis

To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net


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