BLBG:Euro Falls After Moody’s Says Summit Offered Few New Measures; Krona Drops
The euro fell the most in two weeks versus the dollar as Moody’s Investors Service said it will review the ratings of European Union nations after last week’s summit failed to produce decisive steps to end the debt crisis.
The dollar and yen strengthened against most of their major counterparts as investors sought safer assets on concern crisis- fighting efforts are failing to stop European borrowing costs from rising. Sweden’s krona weakened as stock declines reduced demand for higher-yielding investments. China’s yuan appreciated after the central bank signaled the currency will be allowed to trade more freely.
“Moody’s captures the mood,” said Kit Juckes, head of foreign-exchange research at Societe Generale SA in London. “The market is disappointed that nothing more substantial was agreed” at last week’s European Union summit. “There are no convincing reasons for anyone to want to own the euro today.”
The euro fell 0.9 percent to $1.3264 at 7:14 a.m. in New York after dropping as much as 1 percent, the most since Nov. 25. The currency slid 0.7 percent to 103.18 yen, and declined 0.7 percent to 84.86 U.K. pence after reaching 84.85 pence, the lowest level since March 3. The dollar advanced 0.2 percent to 77.79 yen.
The single currency may depreciate toward $1.3145, which would be the weakest since January, Juckes said.
European leaders unveiled a blueprint after meetings on Dec. 8 and 9 for a closer fiscal accord to save the euro, adding 200 billion euros to their bailout fund and tightening rules to curb future debts. They also said they would start a 500 billion-euro rescue fund next year.
Rating Revisions
The agreement offered few new measures and doesn’t diminish the risk of credit-ranking revisions, Moody’s said in its Weekly Credit Outlook. “Our intention as announced in November is to revisit the level and dispersion of ratings during the first quarter of 2012,” the company said.
Standard & Poor’s put the EU’s AAA rating on “creditwatch negative” on Dec. 5 after similar action on 15 of the 17 euro nations, pending the outcome of last week’s summit and the actions of central bankers.
The euro has fallen 1.4 percent in the past month, the biggest loser among 10 developed-nation currencies according to Bloomberg Correlation-Weighted Indexes. The dollar gained 2.6 percent, the best performer, and the yen advanced 1.8 percent.
Italian bonds slid as the nation sold 7 billion euros of one-year bills to yield 5.95 percent, compared with an average 2.70 percent in the past five years. The securities fell even after the ECB was said to have bought the nation’s debt. Italy has to repay about 53 billion euros in the first quarter, about a third of the region’s maturing bonds.
Eyes on ECB
“All eyes will now be on whether the ECB is willing to step up its bond purchases, if not then it now appears likely S&P will follow through with its mass downgrade of EU members soon,” Lee Hardman, a currency strategist at Bank of Tokyo- Mitsubishi UFJ Ltd. in London, wrote in a note to clients. Demand for the yen and the dollar is “likely to remain firm,” he said.
Sweden’s krona fell to the weakest this month versus the dollar as the Stoxx Europe 600 Index slid 0.5 percent.
The currency also declined as Maris Mancinskis, head of the Swedbank AB Latvian unit, said Latvians pulled about $19 million from local automatic teller machines following “lies” about shutting its Estonian business.
Risk Aversion
“The Swedish krona is a very cyclical currency and we have a bit of risk aversion in the equity market today, which adds to its downside,” said Niels Christensen, chief currency strategist at Nordea Bank AB in Copenhagen.
The krona dropped 1.4 percent to 6.8241 per dollar after sliding to 6.8266, the weakest since Nov. 30. It depreciated 0.5 percent to 9.0508 per euro.
The yuan rose after the Financial News reported Xuan Changneng, head of the People’s Bank of China’s financial stability bureau, as saying policy makers will maintain flexibility while pushing forward with interest-rate and exchange-rate reform.
“The PBOC’s comment quelled investors’ depreciation expectations after the weaker export growth,” said Kenix Lai, a currency analyst at Bank of East Asia Ltd. in Hong Kong “The stronger fixing also shows that China will still allow gains in the currency, even though the pace may slow.”
The yuan gained 0.06 percent to 6.3606 per dollar, after falling 0.08 percent last week.
Cutting Forecasts
Foreign-exchange strategists are slashing their forecasts for the euro at the fastest pace this year as ECB President Mario Draghi’s interest-rate cuts remove one of the currency’s pillars of support.
Since Nov. 3, when Draghi began to undo the rate increases implemented earlier this year by his predecessor, Jean-Claude Trichet, analysts have reduced end-of-2012 estimates for the euro to $1.32 from $1.40, based on the median of 40 forecasts in a Bloomberg survey as of last week. It has weakened versus every major currency except the Swiss franc since then, after gaining against 12 of the 16 this year prior to that.
“There still has to be further monetary easing by the ECB to support growth in the euro area for 2012 and beyond,” Ken Dickson, investment director of currencies at Standard Life Investments in Edinburgh, which manages about $235 billion, said in a Dec. 9 telephone interview.
To contact the reporters on this story: Paul Dobson in London at pdobson2@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
