Bloomberg News

Euro Weakens on Economic Outlook; Krona Drops Versus Major Peers

November 09, 2012

The euro slid to a two-month low against the dollar and the weakest level in almost a month versus the yen as a drop in French industrial production added to speculation Europe’s economic outlook is worsening.

The 17-nation currency declined for the week versus the yen and dollar as Greek lawmakers prepared to vote Nov. 11 on next year’s budget. The euro pared losses after U.S. consumer confidence climbed to a five-year high. The yen was stronger on concern U.S. lawmakers may push the world’s biggest economy into recession in a budget-deficit showdown. Sweden’s krona tumbled against all of its 16 most-traded peers.

“There is festering uncertainty on both sides of the Atlantic,” said Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co. (WU:US) “It’s a combination of U.S. fiscal woes and the European debt crisis and its growth picture. U.S. data may provide occasional opportunities for investors to book profit on the strong rally we’ve seen for safe currencies.”

The euro fell 0.3 percent to 101.05 yen at 5 p.m. in New York and touched 100.43, the weakest since Oct. 11. It lost 2.1 percent this week. The shared currency declined 0.3 percent to $1.2714 and reached $1.2690, the lowest level since Sept. 7. It dropped 0.9 percent over the past five days in its third weekly loss. The yen was little changed at 79.49 per dollar.

French industrial output slid 2.7 percent from a month earlier, a report showed. The median prediction was for a 1 percent decline. Business confidence in the euro area’s second- largest economy held near a three-year low last month, according to Bank of France data.

Deeper Contraction

“It doesn’t really come as a surprise that there are growth concerns in Europe -- they are in a recession -- but the contraction looks like it may be deeper,” said Eric Viloria, senior currency strategist for Gain Capital Group LLC in New York. “It’s going to add to negativity and weigh on the euro.”

The yen touched 79.08 per dollar, the strongest level since Oct. 18, and gained versus most major peers. The currency typically strengthens in times of political, financial and economic turmoil because Japan’s historical trade surplus means the nation doesn’t have to rely on overseas lenders.

Risk aversion eased after the Thomson Reuters/University of Michigan consumer sentiment index rose to 84.9 in November, the strongest since July 2007, from 82.6 a month earlier. The reading for October was the highest since September 2007. Economists in a Bloomberg survey forecast a preliminary reading of 82.9 for November.

Dollar Index

The Dollar Index (DXY) rose 0.3 percent to 81.058 after rallying earlier to a two-month high of 81.087.

U.S. stocks gained, with the Standard & Poor’s 500 (SPX) Index rising 0.2 percent after falling 0.3 percent earlier.

Mexico’s peso gained from a two-month low versus the greenback after the report on sentiment in its biggest trade partner. The currency was 0.2 percent weaker at 13.2003 per dollar after dropping 0.9 percent earlier to 13.2932.

Brazil’s real fell to a four-month low versus the greenback amid speculation the nation’s central bank will maintain its policy to weaken the currency. The real slid as much as 1.2 percent to 2.0658 per dollar, its weakest level since June, before trading at 2.0462, down 0.3 percent.

Taiwan’s dollar rose against all 16 major counterparts as foreign investors increased holdings of stocks in the Asian nation by $209 million this week. It gained 0.4 percent to 29.010 to the greenback.

Worst Performance

Europe’s shared currency has declined 6 percent over the past year, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 0.9 percent and the yen weakened 1.5 percent. The krona was little changed.

Sweden’s currency fell the most in five weeks against the euro. The data provide the central bank more reason to cut interest rates after lowering them three times since December.

The krona depreciated 0.8 percent to 8.5750 per euro, and fell as much as 0.9 percent in the biggest drop since Oct. 3. The currency slid 1.1 percent to 6.7460 per dollar.

Swedish industrial production decreased an annual 5 percent in September after rising a revised 2.7 percent the previous month, Statistics Sweden said on its website. Economists surveyed by Bloomberg News predicted a decline of 0.1 percent.

“The European currencies are suffering, and probably deservedly so,” said Steven Barrow, head of group-of-10 research at Standard Bank Plc in London. “The economic data has been quite poor. Obviously policy makers didn’t respond this week, so maybe that’s a little bit disappointing.”

Greece Aid

The euro fell yesterday against the dollar and yen after a European Union official said euro-area finance ministers may not make a decision on unlocking a 31.5 billion-euro ($40 billion) installment of rescue funds for Greece until late this month.

The finance chiefs will await a final report from the EU, European Central Bank and International Monetary Fund on Greece’s efforts to meet the conditions of its rescue, the official said on condition of anonymity because the deliberations are private. Europe’s debt crisis began in Greece three years ago.

Greek Prime Minister Antonis Samaras eked out a slim parliamentary majority yesterday for a bill on pension, wage and benefit cuts. The next hurdle comes on Nov. 11, when the parliament votes on the nation’s 2013 budget.

Investors have also sought refuge since the re-election of President Barack Obama and a split Congress this week spurred concern lawmakers will be unable to compromise on the budget.

The U.S. faces $1.2 trillion in mandated spending cuts and tax increases over a decade starting Jan. 1 if Congress can’t agree to reduce the deficit, which totaled $1.09 trillion in fiscal 2012. The Congressional Budget Office has said the U.S. economy would slow by as much as 0.5 percent next year if Congress fails to prevent the measures from kicking in.

To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net

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


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