SF: Euro Weakens as Italy's Biggest Bank to Seek Broader ECB Rules
Nov. 16 (Bloomberg) -- The euro fell to the weakest level in a month against the dollar as Italy's largest bank, UniCredit SpA, prepared to ask central-bank officials to broaden the types of assets accepted as collateral, while sovereign debt yields traded at almost euro-era highs.
The 17-nation currency dropped to a five-week low versus the yen as the European Central Bank was said to be buying Spanish and Italian government bonds, narrowing their yield gap over benchmark German bunds to stem investor concern. The Dollar Index rose as the cost of living in the U.S. unexpectedly fell. Currencies of commodity-exporting nations such as Canada and Brazil fell versus the dollar.
"UniCredit shows the risk of seeing some major financial institution being in difficulty is right on the table now that we've seen deterioration in the last couple of days in government bond markets," said David Mann, New York-based regional head of research for the Americas at Standard Chartered Plc. "If the ECB is coming in to buy bonds, it shows how much stress and negative pressure there is, and that will be on the euro as well."
The shared currency fell 0.2 percent to $1.3513 at 9:56 a.m. New York time, after dropping earlier to $1.3429, the weakest level since Oct. 10. The shared currency declined 0.2 percent to 104.07 yen after weakening to 103.41 yen. Japan's currency was little changed at 77 versus the dollar.
The euro slid 1.4 percent over the past six months versus nine developed-nation peers tracked by Bloomberg Correlation- Weighted Indexes. The yen gained 7.3 percent and the dollar rose 3.4 percent, the best performers.
ECB Bond Buying
The ECB bought larger-than-usual sizes and quantities of the Italian debt, said two people with knowledge of the trades, who declined to be identified because the deals are private. A spokesman for the ECB in Frankfurt declined to comment.
Italian 10-year bonds dropped, pushing yields to as high as 7.13 percent before they traded at 6.97 percent. The yields reached 7.48 percent, their euro-era high, on Nov. 9. Spanish 10-year note yields reached 6.39 percent today. They touched 6.46 percent on Aug. 2, the highest since 1997.
The cost for European banks to fund in dollars rose to a three-year high, money-market indicators showed. The three-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, was 1.26 percentage points below the euro interbank offered rate, data compiled by Bloomberg show. That's the most expensive funding level based on closing prices since December 2008, when the measure reached minus 145. The figure was minus 119.5 yesterday.
'Getting Worse'
"Each day that goes by the situation is getting worse, and it's inevitable under those circumstances that the currency comes under pressure," said Derek Halpenny, European head of currency research at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. "There's unbelievably difficult decisions that lie ahead for Europe in terms of resolving this crisis."
Greek Prime Minister Lucas Papademos faces a vote of confidence in his six-day old government today as he races to secure financing designed to avert a collapse of the economy and keep Greece in the euro.
UniCredit Chief Executive Officer Federico Ghizzoni is among bankers meeting with the ECB in Frankfurt. Ghizzoni's remarks on asking for broader collateral rules, originally reported by Corriere della Sera, were confirmed by a spokesman.
Dollar Index
IntercontinentalExchange Inc.'s Dollar Index, which it uses to track the greenback against the currencies of six major U.S. trading partners, increased 0.2 percent to 78.051. The gauge is weighted 57.6 percent to movements in the euro.
The U.S. consumer-price index declined 0.1 percent in October from the prior month after a 0.3 percent rise, Labor Department data showed today in Washington. The core rate that excludes food and fuel costs rose 0.1 percent, matching September as the smallest gain this year.
American industrial production rose 0.7 percent last month after a revised 0.1 percent drop in September, figures from the Federal Reserve showed today.
The Standard & Poor's 500 Index dropped 0.7 percent. The MSCI World Index declined as much as 1 percent after gaining as much as 0.2 percent.
Sterling depreciated versus the dollar as the Bank of England said Britain faces a "markedly weaker" outlook for economic growth, signaling it may expand stimulus.
Growth may be "broadly flat" in the first half of 2012, central bank Governor Mervyn King said at a press conference after the quarterly Inflation Report.
Unemployment Climbs
The pound also fell after the Office for National Statistics said British unemployment rose the most since 2009, with the rate climbing to a 15-year high of 8.3 percent and joblessness among young people reached more than 1 million for the first time since at least 1992.
The pound weakened 0.3 percent to $1.5773 after falling to as low as $1.5745, the least since Oct. 20. It was little changed versus the euro at 85.62.
Canada's dollar declined 0.4 percent to C$1.0247 after European Commission President Jose Barroso said the euro region is facing a "truly systemic" crisis. Brazil's real retreated 0.5 percent to 1.7750 per dollar.
--With assistance from Andrew Clapham in Brussels, Paul Dobson and Svenja O'Donnell in London. Editors: Greg Storey, Paul Cox
To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net
