Bloomberg News

Euro Fails to Extend Gains Before EU Leaders Meet on Debt Crisis

January 29, 2012

Jan. 30 (Bloomberg) -- The euro failed to extend last week’s advance against the dollar before European Union leaders meet in Brussels today to discuss the region’s debt crisis.

The yen maintained a two-day gain versus the 17-nation euro as Italy prepares to sell bonds today after its credit grade was downgraded by Fitch Ratings. Demand for the euro was supported amid speculation Greece and its private-sector creditors will reach an agreement on a debt swap this week.

“Even with a resolution, the bottom line is that there’s going to be tough medicine having to be swallowed by Europe,” said Gavin Stacey, chief interest-rate strategist at Barclays Capital in Sydney. “There is a greater risk of a pullback in euro strength.”

The euro traded at $1.3213 as of 8:39 a.m. in Tokyo from $1.3220 on Jan. 27 in New York. It strengthened 2.2 percent against the dollar last week. The common currency was little changed at 101.40 yen, following a 0.1 percent drop on Jan. 27. The dollar fetched 76.74 yen from 76.70.

Barclays’ Stacey predicts the euro will decline to $1.20 by the middle of this year.

Italy is scheduled to sell debt today maturing in 2016, 2017, 2021 and 2022.

Fitch cut the credit ratings of Italy, Spain and three other euro-area countries on Jan. 27, saying they lack financing flexibility in the face of the regional debt crisis.

Italy, the euro area’s third-largest economy, was cut two levels to A- from A+. Spain was also lowered two grades, to A from AA-. Ratings on Belgium, Slovenia and Cyprus were also reduced, while Ireland’s was maintained.

Greece and its creditors are “close” to an agreement on a debt exchange within a framework outlined by Luxembourg Prime Minister Jean-Claude Juncker, according to a Jan. 28 statement from the Institute of International Finance, which is negotiating on behalf of private bondholders.

EU chiefs will meet in the Belgian capital today to put the finishing touches on a German-led deficit-control treaty and endorse the statutes of a 500 billion-euro ($661 billion) rescue fund to be set up this year.

-- Editors: Benjamin Purvis, Naoto Hosoda

To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net


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