BLBG:Euro Falls to Two-Week Low as Italian Yields Surge, EU Ministers Convene
The euro fell to two-week lows against the dollar and yen as Italian bond yields surged on concern that Europe’s sovereign-debt crisis is deepening, while policy makers remain divided on how to structure aid for Greece.
The euro approached a record low against the Swiss franc after Die Welt reported that the European Central Bank is seeking to expand a fund so it could aid Italy and the Financial Times said European leaders may accept a Greek default on some bonds. Higher-yielding currencies including Australia’s dollar weakened on speculation China will take further action to cool growth. Norway’s krone weakened after data showed inflation in June was less than economists had estimated.
“It’s really a story of independent euro weakness,” said Adam Cole, head of global currency strategy at Royal Bank of Canada Europe Ltd. in London. “We are seeing contagion spreading to Italy. The bailout facility as it stands would be nowhere near big enough to deal with Italy.”
The 17-nation euro fell 0.9 percent to $1.4136 at 10:28 a.m. in London, after earlier touching $1.4133, the lowest level since June 27. It slid 0.8 percent to 114.15 yen, and touched 114.01 yen, also the least since June 27. The dollar strengthened 0.2 percent to 80.76 yen.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the currency against those of six trading partners, rose 0.6 percent to 75.647.
Enlarged Meeting
The euro has fallen in four of the past five days after Moody’s Investors Service downgraded Portugal to below investment grade, reigniting concern the region’s debt crisis will spread beyond Greece as officials remain at loggerheads over a solution to the crisis.
The yield on Italy’s 10-year bond rose as much as 19 basis points today to 5.47 percent, driving the premium over German bunds to a euro-era record of 268 basis points. The difference in yield, or spread, between Spanish and German 10-year securities also reached a euro-era record at 307 basis points.
A European bailout fund may have to be doubled to 1.5 trillion euros to cover a crisis in Italy, the ECB said, according to the German newspaper Die Welt. The Financial Times cited unidentified senior officials as saying European leaders are prepared to accept that Greece should default on some of its bonds as part of a new bailout plan for the country that would put its total debt levels on a sustainable footing.
The euro weakened 0.7 percent against the Swiss franc to 1.18457 as investors sought the safest European assets. The currency touched a record-low versus the franc of 1.18064 on June 24.
EU Meeting
“Ongoing sovereign concerns are proving to be a real drag on the euro,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington. “Italy is a very large economy, and if indeed we do see contagion spread toward Italy, then the ECB, EU and IMF will need to come up with a totally different plan to deal with it.”
A regular meeting of European Union President Herman van Rompuy and Commission President Jose Manuel Barroso will be enlarged to include ECB President Jean-Claude Trichet, Luxembourg Prime Minister Jean-Claude Juncker and European Economic Commissioner Olli Rehn, said Jesus Carmona, a spokesman for Van Rompuy, in a phone interview yesterday. That will precede a monthly gathering of euro-area finance ministers.
Krone, Aussie
The Norwegian krone fell versus all its major peers after data showed Norway’s underlying inflation rate was 0.7 percent in June, compared with economist estimates for a 1 percent rate, according to the median in a Bloomberg News survey. The krone slid 1.2 percent to 5.4778 per dollar, and was 0.3 percent weaker against the euro at 7.7433.
The Australian dollar fell for a second day against the greenback on speculation China, its largest trading partner, will increase efforts to tame inflation even as growth cools.
Chinese consumer prices increased 6.4 percent in June from a year earlier, the National Bureau of Statistics said on July 9, exceeding the 6.2 percent median estimate of economists surveyed by Bloomberg. The government will say on July 13 that gross domestic product expanded 9.3 percent in the second quarter from a year before, according to a separate survey, down from 9.7 percent the previous quarter.
“Fears of a possible slowdown in China and also the U.S. are spurring risk aversion and driving the Aussie lower,” said Jim Vrondas, a manager at the online currency dealer OzForex Ltd. in Sydney. The China data “makes it more likely that officials will keep tightening.”
The MSCI Asia Pacific Index of stocks fell 1.2 percent. The Aussie dollar declined 0.5 percent to $1.0699.
The best currency forecasters say the dollar’s 13 percent slide over the past year is coming to an end as Europe’s deepening debt crisis discourages bets against the world’s reserve currency.
Led by Schneider Foreign Exchange Ltd., the five most- accurate firms during the six quarters through June 30 as measured by Bloomberg see the dollar trading at $1.42 per euro on average by year-end, compared with $1.43 on July 8. Against the yen, they predict the greenback will rise to 83 from 80.64.
To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Paul Dobson in London at pdobson2@bloomberg.net.
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.
