BS: Euro Weakens on Spain Downgrade; Pound Slips as BOE Holds Rates
By Keith Jenkins and Lukanyo Mnyanda
March 10 (Bloomberg) -- The euro fell to the lowest level in a week against the dollar after Moody’s Investors Service lowered Spain’s credit rating, increasing pressure on European leaders to find a solution to the region’s debt crisis.
Europe’s common currency has lost 1.5 percent against the dollar since climbing to a four-month high on March 7. Spanish debt was downgraded to Aa2 by Moody’s, which also cut Greece’s ranking this week. The pound stayed lower versus the greenback after the Bank of England left interest rates at a record low. The U.S. currency rose on prospects jobs data will signal a continued recovery in the world’s largest economy. The Swiss franc and the yen gained as violence escalated in Libya.
“The Spain downgrade is causing a kneejerk reaction,” said Shant Movsesian, a foreign-exchange strategist at 4Cast Ltd. in London. “There are too many unknowns in terms of how Europe’s going to solve the problem; that’s why the euro is going to be hit.”
The euro declined by 0.6 percent to $1.3833 as of 7:09 a.m. in New York, its third day of losses in four, from $1.3909 yesterday. It weakened earlier to $1.3805, the least since March 2. The 17-nation currency lost 0.3 percent to 114.74 yen and was 0.1 percent weaker at 1.2915 Swiss francs. The dollar strengthened to 82.94 yen from 82.74 yen.
European leaders are due to meet tomorrow having set a March 25 deadline to approve a “comprehensive” package of measures to end the sovereign-debt crisis. Moody’s said the outlook for the Spanish rating is “negative,” meaning the next change is most likely to be another cut.
BOE Rates
The Bank of England’s decision to leave its benchmark interest rate at 0.5 percent was predicted by all 61 economists in a Bloomberg survey. The central bank also maintained its asset-purchase program at 200 billion pounds ($323 billion).
“A near-term hike by the BOE is priced in,” Geoffrey Yu, a currency strategist at UBS AG in London said in a Bloomberg interview conducted yesterday. “If they signal further hawkishness, then maybe sterling will continue to rally.”
The pound weakened 0.3 percent to $1.6157 and strengthened 0.3 percent to 85.59 pence per euro.
The number of Americans continuing to collect jobless benefits decreased to 3.750 million, the least since October 2008, according to a Bloomberg News survey of economists ahead of the data’s release today. Initial jobless claims likely rose by 8,000 to 376,000 last week.
Aussie Decline
InterContinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major trading partners, rose to 77.074 today, 1.2 percent higher than the four-month low of 76.124 on March 7.
Australia’s dollar dropped by the most in two weeks as employers unexpectedly reduced jobs and China reported a trade deficit. The yen and Swiss franc strengthened against most major peers as violence in Libya escalated, driving up oil prices and demand for safe-haven currencies.
Australia’s statistics bureau said employment fell by 10,100 in February from the previous month. That compares with the median forecast for a 20,000 increase in a Bloomberg survey.
Chinese exports rose an annual 2.4 percent, the slowest pace since November 2009, and imports climbed 19.4 percent, according to data on the country’s customs bureau website today. It had a $7.3 billion trade deficit, the biggest in seven years. China is Australia’s largest trading partner.
Kiwi Rates
“Combined with the weak job number earlier today, the China headline knocked the Aussie lower,” said Minoru Shioiri, chief manager of Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “The trade deficit from China was unexpected as it’s a big exporter country, and thus is negative for the currencies tied to the growth.”
The Reserve Bank of Australia will increase interest rates by 27 basis points during the next 12 months, down from 29 basis points yesterday, according to a Credit Suisse AG index based on overnight swaps.
The New Zealand dollar was close to the weakest level in five months after the nation’s central bank cut the benchmark interest rate to match a record low to help the economy recover from the deadliest earthquake in 80 years.
Australia’s currency sank to $1.0030 from $1.0108 in New York, after earlier falling to $1.0022, the weakest since Feb. 24. New Zealand’s dollar was at 73.45 U.S. cents from 73.66 yesterday, when it touched 73.36 cents, the lowest since Oct. 1.
Switzerland’s currency was at 1.2917 per euro from 1.2929 yesterday, after climbing to 1.2870 earlier, the strongest since March 3. The MSCI World Index of shares dropped 0.7 percent.
Crude oil rose as much as 0.7 percent in New York following air and artillery strikes by Muammar Qaddafi’s forces on oil facilities midway along Libya’s coastline. Oil subsequently slipped 1.1 percent.
“An intensification of violence in Libya may see a reduction in investors’ risk appetite,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “This may lead to buying of safe-haven currencies such as the Swiss franc and the yen.”
--With assistance from Candice Zachariahs in Sydney and Ron Harui in Singapore. Editors: Keith Campbell, Matthew Brown.
To contact the reporters on this story: Keith Jenkins in London at Kjenkins3@bloomberg.net; Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
