BLBG:Euro Gains as New Governments in Italy, Greece Boost Investor Confidence
The euro fell for the first time in three days as Italian borrowing costs increased at a five-year note sale today, fueling concern the new government will struggle to contain the country’s debt crisis.
The shared currency weakened versus 12 of its 16 major counterparts as Italy sold the five-year securities at a yield of 6.29 percent, up from 5.32 percent at the previous auction and the highest since June 1997. The Swiss franc dropped after a government report showed producer and import prices fell for a sixth month in October. The British pound declined as an index of employers’ hiring intentions weakened.
“Risk appetite has been gradually diminishing and that’s probably going to keep the euro pinned to the downside,” said Jeremy Stretch, executive director of currency strategy at Canadian Imperial Bank of Commerce in London. “The debt dynamics in Europe remain discouraging.”
The euro dropped 0.9 percent to 105.12 yen at 6:19 a.m. London time, erasing its 0.7 percent advance over the previous two days. The single currency declined 0.6 percent to $1.3663. The yen strengthened 0.3 percent to 76.96 per dollar.
Italy’s Treasury auctioned 3 billion euros of five-year notes, the maximum target. Demand climbed to 1.47 times the amount on offer, from 1.34 times last month. Italy’s 10-year bond yields surged above 7 percent last week.
Germany will sell as much as 6 billion euros of two-year notes on Nov. 16 and Spain is due to offer bonds maturing in 2022 on Nov. 17.
New Premier
Italy’s President Giorgio Napolitano offered the position of premier to former European Union Competition Commissioner Mario Monti yesterday after the resignation of Silvio Berlusconi. Monti, an economist and adviser to Goldman Sachs Group Inc., will try to reassure investors that Italy can cut a 1.9 trillion-euro debt load and spur growth that has lagged behind the euro-region average for more than a decade.
Greek Prime Minister George Papandreou resigned last week to make way for a coalition led by European Central Bank Vice President Lucas Papademos.
The euro has declined 1.1 percent over the past six months, according to Bloomberg Correlation-Weighted Indexes that track the foreign exchange of 10 developed markets. The currency weakened as policy makers struggled to contain a debt crisis that has forced Greece, Ireland and Portugal to seek bailouts.
Buy the Dollar
The euro also declined today after Spiegel magazine reported that German lawmakers are preparing for Greece’s departure from the currency in case the new government doesn’t commit to carry forward reforms that have already been agreed.
“That takes a little bit of the gloss off the euro,” said Tim Kelleher, head of institutional foreign-exchange sales in Auckland at ASB Institutional, a unit of Commonwealth Bank of Australia. “My bias is still to buy the U.S. dollar on dips.”
The franc snapped a two-day gain versus the dollar after the Federal Statistics Office said producer and import declined 1.8 percent last month from a year earlier. The cost of imports slipped 0.5 percent from September.
Switzerland’s currency fell 0.6 percent to 90.45 centimes per dollar, and was little changed at 1.2354 against the euro.
Intervention Success
Swiss National Bank President Philipp Hildebrand is proving intervention in foreign-exchange markets can succeed as speculators bow to his decision to cap the franc against the euro as he seeks to stave off the threat of deflation. The currency has depreciated 10 percent against the euro and 13 percent versus the dollar since Sept. 5, the day before the central bank imposed a ceiling at 1.20 per euro.
The pound declined after the Chartered Institute of Personnel and Development said its gauge of U.K. hiring fell to minus 3 in the fourth quarter from minus 1 in the previous three months. Claims for jobless benefits rose for an eighth month in October, according to a Bloomberg survey of economists before the Nov. 16 report.
The pound dropped 0.8 percent to $1.5941, and slid 1.1 percent to 122.69 yen.
To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net
To contact the editors responsible for this story: Daniel Tilles at dtilles@bloomberg.net
