BLBG:Euro Declines to Lowest in Five Weeks Before Spanish, French Debt Auctions
The euro declined to a five-week low against the dollar and the yen as Spain and France prepare to sell securities tomorrow after Italy led a slump in euro-area debt, signaling Europe’s debt crisis is spreading.
The 17-nation currency weakened for a third day after the extra yield investors demand to hold bonds from France, Belgium, Spain and Austria instead of German bunds climbed to euro-era records. The dollar rose against 15 of its 16 most-traded peers as investors sought safer assets. China’s yuan declined after the People’s Bank of China set its daily reference rate weaker for a second day, suggesting the nation won’t bow to a U.S. call for faster currency appreciation.
“France, Spain, they’re all seeing yields move out, so you get the impression that we’re at some sort of juncture where banks, investors and corporations are starting to prepare for the worst-case outcome,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney. “The euro will remain under pressure.”
The euro fell 0.6 percent to $1.3456 as of 1:21 p.m. Tokyo time from the close in New York yesterday, after touching $1.3437, the weakest level since Oct. 10. The shared currency declined 0.6 percent to 103.69 yen after dropping to as low as 103.59 yen, also the least since Oct. 10. Japan’s currency was little changed from yesterday at 77.06 versus the dollar.
Spain is scheduled to sell as much as 4 billion euros ($5.4 billion) of bonds due 2022, while France will auction notes maturing from 2013 to 2016 tomorrow. Spain and Belgium sold less than the maximum target of bills at auctions yesterday as financing costs increased.
Spanish, French Debt
Ten-year Spanish yields jumped 23 basis points to 6.34 percent. The extra yield over similar-tenor bunds surged to 455 basis points. The spread investors demand to hold 10-year French debt instead of bunds was 190 basis points.
The euro extended declines on speculation so-called stop- loss orders around the $1.35 level were activated, according to Satoshi Okagawa, a senior global markets analyst in Singapore at Sumitomo Mitsui Banking Corp., a unit of Japan’s second largest banking group by market value.
“There seems to be risk-off sentiment, given worries over France, Italy and Spain,” said Okagawa. “Selling of the euro looks strong, and stop-losses in euro-dollar were probably triggered.”
A stop-loss is an automatic instruction to buy or sell a currency at a certain level to limit losses in case a bet goes the wrong way.
Best Performers
The euro has declined 1.6 percent over the past six months, according to Bloomberg Correlation-Weighted Indexes. The yen has gained 7.5 percent and the dollar has risen 3.7 percent, the best performers among the 10 developed-nation peers tracked by the gauge.
“The dollar is being bought as a counterpart of euro selling,” said Masashi Murata, vice president of foreign exchange in Tokyo at BBH Investment Services Inc., a unit of New York-based Brown Brothers Harriman & Co. “When U.S. employment starts to improve among exporters and manufacturers, the dollar is likely to be bought from the second half of next year on expectations for an economic recovery.”
‘Appropriately Calibrated’
The number of Americans filing applications for unemployment benefits was 395,000 last week, according to a Bloomberg News survey of economists before the U.S. government releases the data tomorrow. That compares with a figure of 390,000 for the previous week, which was the lowest level in seven months.
Federal Reserve Bank of St. Louis President James Bullard said yesterday that the central bank’s policy is “appropriately calibrated” and should only be loosened if the economy deteriorates.
The yen was little changed versus the dollar after the Bank of Japan kept monetary policy unchanged and cut its economic assessment as the global slowdown and Europe’s debt crisis risk eroding exports.
Governor Masaaki Shirakawa and his policy board left its asset-buying fund unchanged at 20 trillion yen ($260 billion) after increasing it by 5 trillion yen on Oct. 27. It also held the overnight lending rate between zero and 0.1 percent, the central bank said in a statement released today in Tokyo. The decisions were unanimous.
Monti, Papademos
Losses in the euro were limited before Italian Prime Minister-designate Mario Monti announces his new government today. Monti is due to meet with President Giorgio Napolitano to officially accept the post and possibly present his ministers. He said his consultations with parties, unions and employers have left him “convinced” that Italy can overcome the crisis.
Greece’s Prime Minister Lucas Papademos faces a vote of confidence in his six-day old government today. Lawmakers in parliament will cast their ballots in a roll-call vote giving him a three-month mandate to implement budget measures and ensure a bailout of 130 billion euros agreed to with euro partners on Oct. 26.
China’s yuan slid on speculation the central bank’s reference rate fixing may be a response to the U.S.’s call for faster currency appreciation as President Barack Obama kept up his pressure on the nation’s foreign-exchange policy and trade practices.
‘Enough Is Enough’
“The fixing in the past two days had certain political undertones to it as it followed very loud criticism from President Obama,” said Sacha Tihanyi, a Hong Kong-based currency strategist at Scotia Capital, the investment banking unit of Bank of Nova Scotia. “It may be China sending the message, as has been the case in the past, that overly direct criticism of its currency policy is counter-productive.”
Obama said “enough is enough” on what the U.S. views as a too-slow appreciation of the yuan at a news conference concluding a summit with Asia-Pacific leaders in Hawaii on Nov. 13.
The PBOC set its daily reference rate at 6.3509 per dollar, the weakest level since Oct. 24. The yuan is allowed to trade up to 0.5 percent on either side of the daily reference rate.
The yuan weakened to 6.3495 per dollar from 6.3465 yesterday, according to the China Foreign Exchange Trade System.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
