Bloomberg News

Euro Loses Most in 4 Months Against Yen on Fiscal Cliff, Greece

November 10, 2012

The euro slid the most in in four months versus the yen on concern a U.S. budget showdown known as the fiscal cliff will push the world’s biggest economy into recession and Greece will struggle for more rescue funds.

Japan’s currency rose against all of its 16 most-traded peers as investors sought haven amid a worsening global economic outlook. The euro fell for a third week versus the dollar, the longest losing streak since July, before Greece’s parliament votes on a budget tomorrow. The 17-nation euro economy shrank for a second quarter, data next week are forecast to show. New Zealand’s dollar tumbled after the nation’s jobless rate jumped.

“There’s definitely been a reluctance to take on risk until we see clearer signs that a resolution to the fiscal cliff is in sight,” Vassili Serebriakov, a New York-based currency strategist at BNP Paribas SA, said yesterday in a telephone interview. “The decision to hold off on a Greek decision was a negative as well.”

The euro tumbled 2.1 percent to 101.05 yen in New York trading in its biggest weekly loss since July 6. It touched 100.43 yen yesterday, the weakest level since Oct. 11. The shared currency dropped 0.9 percent to $1.2714 and reached $1.2690, the lowest since Sept. 7. The yen rallied 1.2 percent to 79.49 per dollar in its first weekly gain since Oct. 12.

Net Shorts

Futures traders increased their bets the euro will decline against the U.S. dollar, according to Commodity Futures Trading Commission data. 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 -- so-called net shorts -- was 67,141 on Nov. 6, compared with 58,204 a week earlier.

Speculators increased wagers the yen will fall versus the greenback to 40,414, the most since May 11, from 37,020 a week earlier, the figures showed.

The dollar gained against the majority of its most-traded counterparts amid concern President Barack Obama will struggle to convince Congress to avert automatic budget cuts and tax increases scheduled to take place at the end of the year. The dollar strengthens as investors buy U.S. Treasuries, a traditional refuge.

Obama won a second term this week, while Republicans maintained control of the House of Representatives and Democrats held on to a majority in the Senate.

Mandated Cuts

The U.S. faces $1.2 trillion in mandated spending reductions and tax boosts 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.

The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, gained 0.5 percent to 81.026, rising for a third week. It rose above its 200-day moving average of 80.671 on Nov. 5, the first move across the average since Sept. 7.

The dollar was the strongest net-purchased currency this week, according to Bank of New York Mellon client data.

“The last time we got close to the debt ceiling and we had the credit-ratings downgrade, around that period we saw the markets struggle and the dollar do very well,” Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York, said on Nov. 5 in an interview on Bloomberg Televison’s “Lunch Money” with Sara Eisen.

Standard & Poor’s stripped the U.S. of its AAA credit rating on Aug. 5, 2011, after months of political brinkmanship that pushed the nation to the deadline for an agreement to lift the debt ceiling.

Mexico, Canada

Mexico’s peso and Canada’s dollar fell on bets the dispute will damage the economy of their biggest trade partner. The peso slid 1.2 percent to 13.2003 to the greenback. The Canadian currency lost 0.6 percent to C$1.0016 per U.S. dollar.

The euro fell against most of its major peers as Greek Prime Minister Antonis Samaras eked out a slim majority vote Nov. 8 for a bill on pension, wage and benefit cuts needed to win an installment of rescue funds. The next hurdle comes when the parliament votes tomorrow on the 2013 budget.

The votes are required by Nov. 12 for Greece, where Europe’s debt crisis began three years ago, to get a 31.5 billion-euro ($40 billion) aid payment and avert a financial collapse that might drive the country from the euro.

EU Delay

European Union finance ministers will delay for “weeks” the decision on Greece’s next payment, an EU official said Nov. 8 on condition of anonymity because deliberations are private.

The currency bloc’s gross domestic product contracted 0.1 percent in the third quarter, economists in a Bloomberg survey forecast before data due Nov. 15. The economy shrank 0.2 percent from April through June after stagnating in the first quarter.

The euro dropped 6 percent over the past year, the biggest loser among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 0.9 percent, and the yen weakened 1.5 percent. The New Zealand dollar, nicknamed the kiwi, climbed 5.5 percent in the best performance.

The kiwi dropped this week to the lowest level versus the U.S. dollar since Oct. 24 after New Zealand’s unemployment rate surged to a 13-year high of 7.3 percent in the third quarter. The currency slid 1.4 percent to 81.40 U.S. cents and touched 81.24 cents.

The yen reached its strongest level against the greenback yesterday since Oct. 18, 79.08. U.S. two-year note yields fell to 0.26 percent, shrinking the excess yield investors receive for purchasing U.S. securities versus Japanese government bonds to 16 basis points, or 0.16 percentage point, the least since Oct. 15. That damped the appeal of dollar-denominated debt versus yen-based securities as investors sought haven assets.

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