Bloomberg News

Euro Weakens on Concern Debt Crisis Is Spreading

April 05, 2012

The euro fell to a three-week low against the dollar as Spanish and Italian bonds slumped and borrowing costs increased at a French auction, adding to concern the region’s debt crisis is spreading.

The 17-nation currency dropped to a three-week low versus the yen as Spain’s 10-year bond yields increased to the biggest spread compared with German bunds since November amid investor concern that Spanish Prime Minister Mariano Rajoy may require international aid. The Swiss National Bank said it won’t allow the franc to go beyond 1.20 per euro after the currency rose past that level for the first time since the ceiling was put in place in September.

“We’ve certainly seen some tensions coming back, especially concerning Spain,” Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York, said in a telephone interview. “It’s definitely been more of a risk-off day and currencies suggest that the yen and the dollar are the best performing G-10 currencies.”

The euro fell 0.6 percent to $1.3066 at 5:14 p.m. in New York, touching the weakest level since March 15. The shared currency slid 0.7 percent to 107.61 yen. It earlier declined to 106.89, the lowest since March 8.

Euro Trade

The euro has declined 1.2 percent in the past week, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar appreciated 1.1 percent, and the yen gained 1.8 percent.

“It reflects a growing unease in Europe over Spain’s finances, and that’s a good part of the euro weakness,” Thomas Molloy, chief dealer at FX Solutions LLC, an online currency- trading company in Saddle River, New Jersey, said in a telephone interview. “There’s definitely some concerns starting to come to the fore in Europe, specifically about Spain.”

The euro may decline as much as 4 percent to a three-month low against the dollar should it breach major support levels, Commerzbank AG said, citing technical patterns.

The euro “has reached the short-term support line at $1.3136,” Karen Jones, head of fixed-income, commodity and currency technical analysis in London, wrote in an e-mailed report today. “Failure here should be enough to refocus attention onto the $1.3004 recent low and then $1.2974/54.”

Canada Jobs

Canada added the most jobs since 2008 last month, a gain that was more than seven times greater than economists forecast and dominated by full-time positions. The Canadian currency climbed as much as 0.6 percent and traded at 99.31 cents per U.S. dollar.

“We had a huge blowout Canadian jobless number,” Molloy said. “There’s the possibility of a blowup number to the upside on the nonfarm payrolls tomorrow.”

Claims for U.S. unemployment benefits dropped last week to the lowest level in four years, adding to recent reports showing signs of health in the economy, the Labor Department reported today in Washington. Tomorrow’s report from the Labor Department on total payrolls, which includes government workers, is projected to show a gain of 205,000 in March, according to a median forecast of economists surveyed by Bloomberg.

The Dollar Index, which Intercontinental Exchange Inc. uses to track the currency against those of six major trading partners, rose 0.3 percent to 80.052, reaching the highest level since March 16.

Spain’s 10-year yields increased to 400 basis points, or 4.0 percentage points, more than similar-maturity bunds after demand declined at a Spanish debt sale yesterday. Italy’s 10- year yield increased 12 basis points to 5.48 percent.

French Bonds

France auctioned 4.32 billion euros of 10-year debt today at an average yield of 2.98 percent, up from 2.91 percent at the previous offering on March 1. Borrowing costs for five-year and 15-year debt also increased.

“The Spanish auction showed the problem in the euro area is not going away any time soon, and there’s continued pressure of flows going from Europe into Switzerland,” said Peter Rosenstreich, a Geneva-based chief currency analyst at Swissquote Bank SA.

The franc climbed to as strong as 1.19995 per euro before trading 0.1 percent higher at 1.20231. The Swiss currency weakened 0.4 percent to 91.98 centimes per dollar.

The Swiss central bank set a limit of 1.20 francs per euro on Sept. 6 to protect exports after investors turned to the nation’s currency as a haven from Europe’s sovereign-debt crisis. The SNB won’t allow the franc to rise above the ceiling and is ready to buy foreign currencies in unlimited quantities, spokesman Walter Meier said by telephone today.

Pound Rise

The pound strengthened for a second day versus the euro as the Bank of England left its bond-purchase target unchanged at 325 billion pounds ($515 billion) and its policy rate at 0.5 percent, as anticipated by Bloomberg surveys of economists.

“We have had very strong data coming out of the U.K. this week,” said Audrey Childe-Freeman, global head of currency strategy at JPMorgan Private Bank in London. “With the news that we’ve had out of the U.K. in the past few weeks, there is much less of a case for adding stimulus and at the margin that is supportive for sterling.”

The pound gained 0.2 percent to 82.54 pence versus the euro after rising to 82.38 pence, the strongest since Jan. 9. Sterling dropped 0.4 percent to $1.5828.

Prime Minister Yoshihiko Noda’s nominee to the Bank of Japan board was rejected by the upper house of parliament in a victory for lawmakers pressing for more monetary easing to spur growth and end deflation. BNP Paribas SA economist Ryutaro Kono was blocked by a vote of 127 to 111 in the house, where the ruling Democratic Party of Japan is a minority.

The yen added 0.1 percent to 82.37 per dollar.

To contact the reporters on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net; Emma Charlton in London at echarlton1@bloomberg.net

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


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