Bloomberg News

Euro Weakens as Rajoy Says Spain Not Under Aid Pressure

October 19, 2012

The euro declined for a second day against the dollar after Spanish Prime Minister Mariano Rajoy said his nation doesn’t feel under any pressure to ask for a bailout, fueling concern the debt crisis will be prolonged.

The 17-nation currency dropped for the first time in seven days versus the yen on speculation this week’s European Union summit in Brussels will fail to provide clarity on potential financial aid for Spain. The pound gained against the euro after the U.K. budget deficit narrowed. Canada’s dollar weakened to an eight-week low against its U.S. counterpart after September consumer prices data trailed forecasts.

“Up until recently, we had been getting some indications from Europe of a more conciliatory tone from officials with regards to Spain,” Carl Forcheski, a director on the corporate currency sales desk at Societe Generale SA in New York, said in a telephone interview. “But concerns still remain. The worries of October are still out there.”

The euro fell 0.3 percent to $1.3024 at 5 p.m. in New York time after dropping 0.4 percent yesterday. The shared currency depreciated 0.3 percent to 103.28 yen. The yen was little changed at 79.32 per dollar.

Rand, Kiwi

South Africa’s rand rose versus most of its 16 of its major counterparts and is headed for a second week of gains as striking workers at Gold Fields Ltd., South Africa’s second- largest producer of the metal, returned to work and other gold- mining companies improved a pay offer to workers.

The currency depreciated 0.1 percent to 8.6614 per dollar after earlier gaining 0.6 percent.

China’s yuan advanced for an 11th week, the longest winning streak since 2008, as factory output and spending data fueled optimism the economic slowdown is coming to an end. The currency touched a 19-year high yesterday after reports showed growth in industrial production, retail sales and fixed-asset investment accelerated in September.

The Chinese currency was little changed today at 6.2535 and increased 0.2 percent this week. The yuan has advanced 2.3 percent since reaching this year’s low on July 25.

“We’ve had optimism surrounding China this week,” Jane Foley, a senior currency strategist at Rabobank International in London said in a Bloomberg Radio interview with Tom Keene and Ken Prewitt. “The market is now beginning to think that maybe China has avoided that hard landing and maybe things will improve from here.”

Euro Goals

European leaders committed to their goal of establishing a euro-area bank supervisor by year-end at the summit. The EU will seek to agree on a framework that makes the European Central Bank the main supervisor by Jan. 1, according to conclusions released today. The new system will be phased in over the next year and may cover all 6,000 euro-area banks by Jan. 1, 2014.

Rajoy said the EU summit in Brussels, which entered a second day today, made “significant progress” and showed that the EU would fulfill its commitments. He also said his government would take a decision on asking for any bailout based on Spain’s interest.

“There is some disappointment over the latest EU summit,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “That’s why the euro is a bit lower. We need some fresh good news to get things going further. It’s not apparent today.”

Weekly Advance

The euro still gained on the week versus the dollar and yen on bets the sovereign-debt crisis is easing.

The common currency appreciated 3.3 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes tracking 10-developed market currencies. The yen dropped 4.2 percent and the dollar declined 3.2 percent.

“When the markets are really pushing up the temperature and yields are moving higher, that’s the point when the politicians and the ECB have to come in and do something about it,” Rabobank’s Foley said. “Right now, all the pressure is being relived so as a consequence we’re not going anywhere, at least not fast.”

Italian bond yields have declined 32 basis points, or 0.32 percentage point, to 4.77 percent in October. They fell 76 basis points in September. Yields on Spanish bonds have fallen 57 basis points in September after a 92-basis-point decline in October.

Canadian consumer prices rose 1.2 percent in September from a year ago, matching the August pace, Statistics Canada said today from Ottawa. The central bank’s preferred core rate slowed to 1.3 percent from 1.6 percent in August, the least in more than a year. Economists surveyed by Bloomberg forecast total inflation of 1.3 percent and a core rate of 1.4 percent.

The loonie, as the currency is nicknamed, fell 0.8 percent to 99.36 cents per U.S. dollar, touching the weakest level since Aug. 24.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

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


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