Bloomberg News

Euro Weakens for 5th Day Against Yen on Europe Concern

July 24, 2012

Euro Is Near 11-Year Low Versus Yen on Spain, Italy Debt

One euro price signs hang over discounted goods on sale at a "one euro store" in Athens, Greece. Photographer: Nikos Pilos/Bloomberg

The euro weakened for a fifth day against the yen, the longest losing streak since May, amid speculation Europe’s sovereign-debt crisis is threatening to engulf Spain and Italy.

The 17-nation currency fell below $1.21 for a second day after Moody’s Investors Service cut its ratings outlook for Germany and the Netherlands yesterday and LCH Clearnet Ltd. raised the extra deposit it demands to trade some Spanish and Italian bonds. The yen rose versus most major peers as investors sought safety even as Japan’s government said it’s ready to combat its strength. Australia’s dollar climbed.

“The negative outlook for some of the strongest countries in Europe is troubling, and that got the ball moving as far as some of the softness we’re seeing,” Andrew Busch, a global currency strategist at Bank of Montreal in Chicago, said in a telephone interview. “The rating agencies are just reflecting the rising uncertainty that’s out there on debt costs.”

The euro fell 0.3 percent to 94.74 yen at 9:10 a.m. New York time after declining to 94.24 yesterday, the lowest since November 2000. The five-day losing streak is the longest since the period ended May 31. The single currency dropped 0.1 percent to $1.2104. It slid to $1.2067 yesterday, the weakest since June 2010. The yen rose 0.1 percent to 78.30 per dollar.

The dollar pared gains versus the euro as the Markit Economics preliminary index of U.S. manufacturing decreased to 51.8 in July from 52.5 a month earlier, the London-based group said today, and U.S. stock futures erased losses. A reading above 50 in the purchasing managers’ measure signals expansion. The median forecast in a Bloomberg News survey was 52.

Euro Slump

The euro has slumped 5.6 percent this year, the worst performance among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen advanced 0.2 percent, and the dollar gained 2 percent.

Spain’s borrowing costs increased as it sold 3.05 billion euros of 84- and 175-day bills. The nation auctioned the 84-day securities at a yield of 2.434 percent compared with 2.362 percent on June 26. The 175-day bill was sold at a yield of 3.691 percent, versus 3.237 percent.

The Spanish government hasn’t ruled out leaving the euro as it considers options including an international bailout, El Confidencial reported, citing people close to Prime Minister Mariano Rajoy it didn’t name. While an exit would be disastrous in the short-term, it would then allow Spanish economy to improve competitiveness, the online website reported.

Carmen Martinez Castro, Spain’s deputy minister in charge of communication, declined to comment on the report.

Spanish bonds declined, with the 10-year yield rising to a euro-era record 7.625 percent. The yield on similar-maturity Italian bonds climbed to 6.514 percent, the most since Jan. 18.

Moody’s Outlook

Moody’s said yesterday the increasing likelihood of collective support for European countries including Spain and Italy is “adversely” affecting the Aaa credit ratings of Germany and the Netherlands.

The euro also weakened as a report showed the region’s services and manufacturing output shrank for a sixth month in July. A composite index based on a survey of purchasing managers in both industries was unchanged at 46.4 from June, Markit Economics said in an initial estimate. A reading below 50 indicates contraction.

“What’s surprising is it’s not moving down faster given all the negative news,” Steven Englander, head of Group of 10 currency strategy at Citigroup Inc. in New York, said in a television interview on “Bloomberg Surveillance” with Tom Keene and Sara Eisen.

Greek Commitments

Officials of Greece’s troika of international creditors -- the European Commission, European Central Bank and International Monetary Fund -- arrive in Athens today amid doubts the nation will meet the commitments attached to its bailout funding.

The yen advanced even as Japan’s Finance Minister Jun Azumi said he was ready to take decisive action on the currency if needed. The yen’s advance doesn’t reflect the nation’s economic fundamentals, he told reporters in Tokyo.

Japan’s unilateral interventions in currency markets last year were successful as they stemmed the currency’s rise against the dollar, a Minister of Finance official said. If the nation hadn’t bought dollars on Oct. 31, the yen could have appreciated beyond the 75.35 yen-to-the-dollar level it touched that day, said the official, who spoke on condition of anonymity.

The Bank of Japan, acting at the Ministry of Finance’s behest, spent a record 8.07 trillion yen ($103 billion) on Oct. 31 to bring the currency down from the record 75.35 yen that day. Japan sold at least 14.3 trillion yen in last year’s interventions.

The yen tends to strengthen during periods of financial turmoil because Japan’s current-account surplus makes it less reliant on foreign capital.

‘Verbal Rhetoric’

“The Japanese authorities are gradually strengthening verbal rhetoric in an attempt to dampen yen strength in the near term,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “Still, with the euro- zone sovereign debt crisis likely to escalate further, safe- haven demand for the yen should remain firm.”

Australia’s dollar advanced for the first time in three days after an increase in a Chinese manufacturing gauge bolstered the export prospects for the South Pacific nation.

HSBC Holdings Plc and Markit Economics said a preliminary July reading of their manufacturing gauge for China climbed to 49.5 from a final 48.2 for June. China is Australia’s biggest trading partner.

“We’re all feeling a bit gloomy at the moment, so the fact that we ended up with a less gloomy number in China is quite encouraging,” said Annette Beacher, Singapore-based head of Asia-Pacific research at TD Securities Inc. “The Aussie has taken some heart from that.”

The Australian dollar appreciated 0.4 percent to $1.0296 after sliding 1.2 percent yesterday.

To contact the reporters on this story: Joseph Ciolli in New York at jciolli@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net

To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net


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