BLBG: Euro Slides as Borrowing Costs Surge at Debt Auctions; Yen, Dollar Rally
The euro dropped to a one-month low against the yen as European bond yields surged at auctions and Mario Monti, Italy’s premier-in-waiting, faced resistance to forming a Cabinet.
The 17-nation currency fell for a second day against the dollar as Italy’s 10-year yields surpassed the 7 percent threshold that prompted other European nations to seek bailouts. The Swiss franc dropped versus the dollar after the central bank’s Vice Chairman Thomas Jordan said the currency remains “very strong.” The dollar and yen rose against major counterparts as German investor confidence fell to a three-year low, encouraging demand for a refuge.
“Those higher yields are continuing to put pressure on the euro,” said Eric Viloria, senior currency strategist at Gain Capital Group LLC in New York. German sentiment “just underscores that growth in the euro zone is slowing.”
The euro depreciated 0.7 percent to 104.37 yen at 10 a.m. New York time, after dropping to 103.98 yen, the lowest level since Oct. 10. The shared currency slid 0.5 percent to $1.3568 following a drop of 0.9 percent yesterday. The yen advanced 0.2 percent to 76.94 versus the dollar.
The yen rallied against all 16 of its most-traded counterparts tracked by Bloomberg and the dollar rose as yields on 10-year Treasuries fell to 2.03 percent.
Dollar Index
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, increased 0.3 percent to 77.767. The gauge is weighted 57.6 percent to movements in the euro.
New Zealand’s dollar and South Africa’s rand were the worst performers against the U.S. currency among major counterparts as European turmoil sapped risk demand.
The rand fell to a two-week low, declining as much as 1.9 percent to 8.1487 per dollar. The euro region is the biggest trading partner for South Africa. New Zealand’s kiwi dropped as much as 1.7 percent to 76.71 U.S. cents, the lowest level in more than a month.
The franc declined 0.6 percent to 91.34 centimes per dollar and was little changed at 1.2397 versus the euro after Jordan said yesterday that policy makers are ready to take further measures to counter risks to the economy from an overvalued currency. He declined to say whether the central bank would change the franc’s ceiling of 1.20 versus the euro.
Canadian Dollar
The Canadian dollar pared its drop versus its U.S. counterpart after a report showed factory sales rose for a third straight month in September, increasing twice as much as economists forecast. The loonie dropped 0.6 percent to C$1.0230 versus its U.S. counterpart after earlier falling 0.9 percent.
The euro weakened versus the dollar as Monti, a former European Union competition commissioner, struggled yesterday to get political parties to agree to take part in his so-called technical Cabinet.
President Giorgio Napolitano offered him the post after Silvio Berlusconi resigned. Lucas Papademos, who replaced George Papandreou as Greece’s prime minister, took the reins last week.
“There’s still a lot of uncertainty regarding the euro-zone debt crisis because it’s very difficult to say what will happen next, and we can see this in the currency,” said You-Na Park, a strategist at Commerzbank AG in Frankfurt.
Spanish Bills
Spain raised 3.16 billion euros ($4.28 billion) from selling 12- and 18-month bills today, less than its maximum target of 3.5 billion euros. The average yield on the one-year securities climbed to 5.022 percent from 3.608 percent at the previous sale Oct. 18. Greek and Belgian borrowing costs also rose at auctions today.
Italian 10-year yields climbed as high as 7.07 percent after rising to a euro-era record of 7.48 percent on Nov. 9. The extra yield investors demand to hold the 10-year debt of Spain, France, Austria and Belgium instead of German bunds widened to the most since the euro was introduced in 1999.
The ZEW Center for European Economic Research said its index of German investor and analyst expectations, which aims to predict developments six months in advance, decreased to minus 55.2 this month, the lowest since October 2008.
The euro has declined 1.1 percent over the past six months, according to Bloomberg Correlation-Weighted Indexes, which track the currencies of 10 developed nations. The yen has gained 7 percent, and the dollar has increased 3 percent.
To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
