BLBG: Euro Little Changed as Stocks Drop on Concern Slump to Deepen
The euro was little changed against the dollar as stocks declined around the world and smaller-than- forecast losses at European banks failed to ease concern that the slump in the 16-member nation region is deepening.
The European currency, which tumbled 2.4 percent against the dollar in the past week, erased gains versus the dollar and the yen as the MSCI World Index fell for the seventh day. Commerzbank AG, Germany’s second-largest bank, posted a fourth-quarter loss that was smaller than analysts expected and ING Groep NV said it beat its own forecast.
“The euro will start drifting downward again soon,” said Henrik Gullberg, a currency strategist in London at Deutsche Bank AG, the world’s biggest foreign-exchange trader. “The main concern is still the exposure of banks to Eastern Europe.” The euro will trade at $1.2350 in two weeks, Gullberg said.
The common currency was at $1.2586 as of 10:57 a.m. in London from $1.2582 in New York yesterday and $1.2641 earlier. It touched $1.2559, the lowest level since Dec. 4. Europe’s single currency was little changed at 116.51 yen from 116.27 yen, and rose to 88.83 British pence from 88.37 pence.
The euro tumbled 1.7 percent against the dollar yesterday and 1 percent versus the yen after Moody’s Investors Service said it may cut the ratings of several banks with units in eastern Europe, adding to concern financial turmoil will deepen.
‘Large Exposure’
“Worries are mounting over the financial situation in central and eastern Europe, especially about countries that have large exposure to those regions,” said Akifumi Uchida, deputy general manager of the marketing unit in Tokyo at Sumitomo Trust & Banking Co., Japan’s fifth-largest bank. “The euro is likely to depreciate” to $1.25 and 115.50 yen today, he said.
Commerzbank said today it had net loss of 809 million euros ($1.02 billion), compared with analysts’ median estimate for a loss of 851 million euros. ING Groep NV, the biggest Dutch financial company, posted a loss of 3.71 billion euros, versus the 3.9 billion-euro loss it forecast last month.
Eastern European banks, which are mainly subsidiaries of financial institutions such as Vienna-based Raiffeisen Zentralbank Oesterreich AG and Stockholm-based Swedbank AB, are likely to come under “downward pressure” that may weaken their parent companies, Moody’s said yesterday.
Budget Deficits
The European Commission called on governments today to bring their ballooning budget deficits back in line as soon as possible even as they pour billions into stimulus measures to fight the worst recession since World War II. The Brussels-based commission proposed placing Ireland, Greece, France, Spain, Latvia and Malta under close budget scrutiny, it said in reports on the budgets of 17 European Union nations.
The MSCI World Index fell 0.6 percent today after tumbling 4.1 percent yesterday, the biggest drop since Jan. 20. The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock price changes that’s used as a measure of risk aversion, rose 13.35 percent, the most since Jan. 20, to 48.66 yesterday.
The pound fell to two-week low versus the dollar after the Daily Telegraph said the nation’s debt may be downgraded by Standard & Poor’s as the government boosts borrowing to unprecedented levels to rescue banks.
The U.K. currency fell to $1.4094, the lowest level since Feb. 2., before trading at $1.4170, after minutes of the Bank of England’s last meeting showed the monetary policy committee voted 8-1 to cut the main interest rate to 1 percent. Policy maker David Blanchflower argued for a deeper reduction.
