BLBG: Euro Near Four-Year Low as Europe’s Fiscal Crisis Damps Demand
By Matthew Brown and Yoshiaki Nohara
May 26 (Bloomberg) -- The euro traded near its lowest level in four years against the dollar on concern the European debt crisis will hamper economic growth in the region.
The common currency dropped against 15 of its 16 major counterparts as Italian Prime Minister Silvio Berlusconi’s government approved 24 billion euros ($29 billion) of budget cuts. A German consumer confidence index for June fell more than expected and French consumer spending slid last month, reports today showed. South Korea’s won was little changed as the government pledged to intervene to stabilize the currency amid escalating tensions with North Korea.
“Investors are worried about fiscal contraction in the euro zone,” said Geoffrey Yu, a foreign-exchange strategist at UBS AG in London. “People are questioning if, when push comes to shove, the funds will be there to support the weaker euro- zone countries.”
The euro weakened to $1.2321 at 7:03 a.m. in New York, from $1.2345 yesterday. It touched $1.2144 on May 19, the lowest since April 2006. Europe’s currency dropped to 111.19 yen, from 111.39. It slid to 108.84 yen yesterday, the least since November 2001. The dollar fetched 90.25 yen, from 90.23.
The euro has lost 7.2 percent this year, based on Bloomberg Correlation-Weighted Indexes. The dollar has risen 9.6 percent, with the yen advancing more than 13 percent.
An index of German consumer confidence fell to 3.5 points in June, from a revised 3.7 points this month, GfK AG said. The median forecast of 26 economists surveyed by Bloomberg predicted a reading of 3.6. French spending on manufactured goods dropped 1.2 percent in April from March, Insee said. Economists expected a 0.5 percent decline, a separate survey showed.
Euro Credibility
Germany’s decision to ban naked short selling of credit- default swaps and government bonds without the agreement of other euro-region countries undermines the currency as a “credible store of value,” Bank of New York Mellon Corp. said.
“Once the smoldering fire is put out, it remains to be seen how the underlying structure of Economic and Monetary Union has held up,” Neil Mellor, a currency strategist at BNY Mellon in London, wrote in a research report today.
Naked short selling is when an investor sells a security that they don’t own and haven’t borrowed.
Won Tension
South Korean Vice Finance Minister Yim Jong Yong said at an emergency meeting today that the nation will take prompt and active steps to stabilize the currency.
The won slumped yesterday as tensions escalated between the two Koreas over the sinking of a warship from the South’s navy in March. North Korea said it will sever all ties with South Korea and expelled the South’s workers from a joint industrial zone as “punishment” for accusing it of sinking a warship, killing 46 South Korean sailors.
“News on North Korea will continue to affect the markets,” said Park Yong-il, a foreign exchange trader at DBS Bank Ltd. in Seoul. “The market overshot yesterday. It may calm down today.”
The won dropped to 1,252.28 against the dollar, from 1,251.10 yesterday, when it touched 1,277.85, the weakest since July 16.
The Australian dollar rose as prices of commodities and equities rebounded.
The MSCI World Index of shares gained 0.9 percent, the first increase in three days, while crude oil sold on the Nymex exchange in New York had its biggest advance in four days, gaining 2.9 percent.
Australia’s currency increased to 83.05 U.S. cents, from 82.78 cents yesterday. The currency advanced to 75.02 yen, from 74.69 yen. New Zealand’s dollar traded at 67.13 U.S. cents, from 67.02 cents, and at 60.59 yen from 60.47.
Dollar Index
The Dollar Index, which measures the U.S. currency’s performance against those of six major counterparts, fell for the first time in three days as rising stocks sapped the appeal of the currency as a haven.
The index dropped 0.2 percent to 86.584 after touching 87.459 on May 19, the most since March 2009.
“The American economy is steadily picking up,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. Ltd. in Tokyo. “This is supportive of the dollar.”
U.S. durable goods orders gained 1.3 percent last month after dropping a revised 1.2 percent in March, according to the median estimate of economists in a Bloomberg survey before the data today in Washington. Sales of new homes in the U.S. rose 3.4 percent to an annual pace of 425,000, according to a separate Bloomberg survey.
The Organization for Economic Cooperation and Development raised its growth forecasts for this year and next as emerging economies such as China outpace debt-burdened developed countries to drive the global expansion.
The economy of the OECD’s 30 members will grow 2.7 percent this year, more than the 1.9 percent predicted in November, the Paris-based group said today in a report. Including non-members such as China, the global economy will expand 4.6 percent this year and 4.5 percent in 2011, compared with an average of 3.7 percent during the decade through 2006.
To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net
