Bloomberg News

Euro Trades 0.4% From 16-Month Low Before Debt Sales, ECB Meets

January 12, 2012

Jan. 12 (Bloomberg) -- The euro was 0.4 percent from a 16- month low against the dollar before Spain and Italy sell debt today, amid concern the nations will struggle to meet funding needs after increases in borrowing costs.

The 17-nation currency was little changed against its U.S. counterpart amid concern European Central Bank policy makers won’t take steps to support growth at their meeting today. A report may show European output shrank for a third month in November, according to economist estimates. The yuan fell for a seventh day, the longest losing streak since 2006, on bets U.S. pressure on China to strengthen its currency is lessening.

“The Europe contagion story will linger around for quite a bit longer,” said Matthew Brady, executive director for foreign exchange at JPMorgan Chase & Co. in Sydney. “There’s the ECB, as well as the Spanish and Italian auctions today, so it should be interesting to see whether there’s demand. If they don’t go off well, I think certainly the euro will be under pressure.”

The euro was little changed at $1.2715 at 8:22 a.m. London time, after sliding to as low as $1.2662 yesterday, the weakest level since September 2010. It fetched 97.85 yen from 97.67 in New York yesterday. The euro dropped to 97.28 yen on Jan. 9, the least since December 2000. The dollar was little changed at 76.95 yen.

Spain will auction as much as 5 billion euros ($6.4 billion) of bonds due 2015 and 2016 today, while Italy is scheduled to sell 12 billion euros of bills.

Shrinking Industrial Production

The ECB will probably keep its key interest rate at 1 percent at a policy meeting today, the median estimate of economists surveyed by Bloomberg News showed. The bank cut its benchmark rate by a quarter of a percentage point at each of its last two meetings.

Industrial production in the euro region is forecast to have shrunk in November, according to a separate poll before the European Union’s statistics office in Luxembourg releases the data today. The median forecast is for a 0.3 percent contraction.

“Europe is going into a recession and the U.S. is definitely not,” said Thomas Harr, head of Asian currency strategy at Standard Chartered Plc in Singapore. “Even without the crisis, we still have euro-dollar going lower.”

The euro will fall to $1.20 by March 31, he predicted.

‘Take Back Control’

Corporate ratings downgrades in Europe, the Middle East and Africa will “substantially” exceed upgrades this year as the euro-area crisis hampers economic growth, according to Moody’s Investors Service. “The current trend for corporate rating actions is strongly negative,” analysts wrote in a report published today.

French President Nicolas Sarkozy said yesterday “markets and rating agencies exasperate” French voters and that the country needs to “take back control” of its destiny by cutting the budget deficit.

The euro has depreciated 3.3 percent in the past month, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The New Zealand and Australian dollars, the two best performers, gained 5.5 percent and 3.3 percent respectively.

New Zealand’s currency touched a two-month high versus the dollar today on prospects slowing inflation in China may provide policy makers in the Asian nation with scope to spur growth, boosting investor appetite for higher-yielding assets.

Consumer prices in China rose 4.1 percent in December from a year earlier, the National Bureau of Statistics said on its website today. The figure was 4.2 percent the previous month.

Making a Difference

“The fact that they’re looking at more stimulatory polices in China now, and people think that’s turned the corner, is making a big difference,” said Tony Allen, global head of foreign-exchange trading in Sydney at Australia & New Zealand Banking Group Ltd. “The commodity indexes are starting to move up as well,” supporting currencies such as the Australian and New Zealand dollars.

The so-called Aussie traded at $1.0303 from $1.0310 yesterday. New Zealand’s dollar fetched 79.50 U.S. cents from 79.70 after touching 79.81 cents, the most since Nov. 9.

The Thomson Reuters/Jefferies CRB index of raw materials has gained 2.7 percent this month.

The People’s Bank of China announced in November that it would cut the reserve requirement ratio for the nation’s banks by 50 basis points, the first reduction since 2008. China is Australia’s top trading partner and New Zealand’s second-largest export destination.

The central bank set its yuan fixing 0.12 percent weaker at 6.323 per dollar today. U.S. Treasury Secretary Timothy F. Geithner said the U.S. and China had a “strong cooperative relationship” on economic growth and financial stability after holding talks with Premier Wen Jiabao in Beijing yesterday.

The yuan weakened 0.08 percent to 6.3207 per dollar, according to the China Foreign Exchange Trade System. It’s allowed to trade 0.5 percent on either side of the daily fixing.

--With assistance from Candice Zachariahs in Sydney. Editors: Paul Dobson, Nicholas Reynolds

To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Keith Jenkins in London at kjenkins3@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net


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