Bloomberg News

Euro Falls Versus Yen After Spanish, Italian Auctions

June 26, 2012

The euro fell to the lowest level in more than a week against the yen as Spanish and Italian borrowing costs rose amid concern a European Union summit this week will fail to solve the sovereign-debt crisis.

The 17-nation currency slid earlier against the dollar, reaching its lowest level since June 8, after German Chancellor Angela Merkel told German lawmakers she expects no shared debt liability in her lifetime. The greenback weakened against the yen after a report showed that U.S. consumer confidence fell for a fourth month in June, reaching a five-month low. Australia’s dollar strengthened as traders pared bets on an interest-rate cut.

“Investors are under the impression that nothing meaningful enough will be announced,” Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc. in New York. “Even if there’s something big that’s supposed to be announced, there’s still a lot of uncertainty as to how quickly any announcement could be implemented.”

The euro declined 0.3 percent to 99.32 yen at 5 p.m. New York time after touching 98.75 yen, the lowest level since June 18. It dropped 1.5 percent yesterday, the biggest drop since May 30. The shared currency was down 0.1 percent at $1.2491 after touching $1.2442, the weakest level since June 8. The dollar fell 0.2 percent to 79.52 yen.

The euro may be supported by its June 1 low of $1.2288, according to data compiled by Bloomberg based on technical indicators. Support refers to an area where buy orders may be clustered. The stronger the support, the more selling is needed to break through it.

‘Continued Paralysis’

Europe’s common currency is down from this year’s high of $1.3487 on Feb. 24, and has fallen 3.6 percent against the dollar this year as the financial turmoil in the region deepened. The yen has declined 3.2 percent.

“The dip down in the euro today is on the back of continued paralysis in Europe struggling to find a common message,” Douglas Borthwick, managing director at Faros Trading LLC in Stamford, Connecticut, said in a telephone interview. “The EU is losing credibility the more that finance ministers and leaders of countries talk.”

Italy sold 2.99 billion euros of zero-coupon notes due in May 2014 at a yield of 4.71 percent, more than the 4.04 percent paid on May 28. Spain auctioned 3.08 billion euros of bills, with three-month securities yielding 2.36 percent, compared with 0.85 percent at the previous auction.

‘Some Disappointment’

Spain formally requested a bailout for its banks yesterday, and Cyprus also sought a financial lifeline from the euro area’s firewall funds, becoming the fourth and fifth of the currency union’s 17 member states to require external aid.

Moody’s Investors Service downgraded 28 Spanish banks yesterday, citing the country’s sovereign debt and rising real estate losses.

“What we’re seeing out of Italy and Spain is a key catalyst,” Mary Nicola, a currency strategist at BNP Paribas SA in New York, said in a telephone interview. “There could be some disappointment out of the EU summit.”

The two-day EU summit in Brussels starting June 28 is the first meeting of European leaders since Greek parliamentary elections on June 17 that saw victories for pro-bailout parties. France and Italy are urging Germany to take decisive action to end the debt crisis, now in its third year.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain was 141,066 contracts on June 19, versus a record of 214,418 the week ended June 5, figures from the Washington-based Commodity Futures Trading Commission showed.

‘Investor Confidence’

The euro has depreciated 2.7 percent this year, making it the worst performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has risen 1.4 percent and the yen has fallen 2.3 percent.

“The euro weakness is a reflection of the ongoing loss of investor confidence in European policy makers to deal with the crisis effectively,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “It still appears likely that conditions will have to get a lot worse before they prompt a more decisive policy response.”

The dollar fell against the yen after a U.S. report showed that the confidence index decreased to 62 from a revised 64.4 in the prior month. The median forecasts of economists surveyed by Bloomberg News called for a reading of 63.

‘Tipping Point’

If the dollar rallies above this month’s highs against major peers after failing to breach 50 percent Fibonacci retracement levels, it will signal a “tipping point” for a dollar rally in the coming months, George Davis, chief technical analyst for fixed-income and currency strategy at Royal Bank of Canada, said in a telephone interview. This could result in a renewed period of prolonged risk aversion, Davis said.

The euro has had cumulative net inflows over the past five days twice as strong as the weekly average over the past year, according to Bank of New York Mellon client flow data. The Canadian dollar has seen inflow more than three times as strong as average, according to the largest custodial bank with over $26 trillion under administration. The yen and dollar have had outflows at least twice as strong as average in the past week.

The Australian dollar rebounded after touching its weakest level in more than a week yesterday. Reserve Bank of Australia policy makers meet next week, and are forecast to keep the key rate unchanged, according to a Bloomberg survey of economists.

Interest-rate swaps data compiled by Bloomberg show traders see a better than 50 percent chance policy makers will keep the benchmark rate unchanged next week. That’s up from a 30 percent probability seen on June 19.

The currency rose 0.5 percent to $1.0064 after sinking to 99.69 U.S. cents yesterday, the lowest since June 14. New Zealand’s dollar rose versus most major counterparts, increasing 0.5 percent to 79.11 U.S. cents.

To contact the reporter on this story: Joseph Ciolli in New York at

To contact the editor responsible for this story: Dave Liedtka at

Steve Ballmer, Power Forward
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