BLBG:Dollar Reaches Two-Month High Versus Euro on European Rating-Cut Concern
The dollar reached a two-month high against the euro before three European nations and the region’s bailout fund sell bills amid speculation Standard & Poor’s may cut sovereign credit ratings in the common currency area.
Fitch Ratings and Moody’s Investors Service said yesterday that a European Union summit last week offered little help in ending the region’s debt crisis. The yen touched a two-week high against the euro before a German report today that may show investor confidence in Europe’s largest economy slid to a three- year low. India’s rupee weakened to a record low after manufacturing contracted for the first time since June 2009.
“The ratings agencies are reminding us of sovereign downgrade risk” in Europe, said Sacha Tihanyi, a Hong Kong- based currency strategist at Scotia Capital, the investment banking unit of Bank of Nova Scotia. “The dollar will have no choice but to find support on the back of euro weakness.”
The dollar touched $1.3161 per euro, the highest since Oct. 4, before trading little changed from yesterday at $1.3195 as of 7:02 a.m. in London. A break through the $1.3146 level would be the strongest since January. The euro bought 102.82 yen from 102.76, after earlier falling to 102.60, the least since Nov. 25. The greenback dipped 0.1 percent to 77.89 yen.
Singapore’s dollar declined as much as 0.4 percent to S$1.3049 versus its U.S. counterpart, the weakest since Nov. 28, as the MSCI Asia Pacific Index (MXAP) of shares lost 1.2 percent, sapping demand for higher-yielding currencies.
The European Financial Stability Facility, the EU’s bailout fund, will auction as much as 2 billion euros ($2.6 billion) of 91-day bills today. Greece will sell 1.25 billion euros of 182- day bills, Belgium will offer 1.2 billion euros of short-term debt and Spain will auction 364-day and 553-day bills.
S&P Warnings
S&P said on Dec. 6 the EFSF may lose its top credit rating if any of the fund’s six guarantors face a downgrade from AAA. The rating company may cut the debt grade of 15 euro nations, including Germany and France, depending on the outcome of an EU summit on Dec. 9, S&P said separately last week.
European leaders unveiled a blueprint after the meeting for a closer fiscal accord, adding 200 billion euros to their bailout fund and tightening rules to curb future debts. They said they would start a 500 billion-euro rescue fund next year.
The EU summit offered few new measures and doesn’t diminish the risk of credit downgrades on European nations, Moody’s said. Fitch said separately that a comprehensive solution has not yet been offered and predicted a “significant economic downturn” in the region.
Review on Summit
“People in the market are nervous about a result of S&P’s review on the summit,” said Koji Iwata, vice president in New York of Mizuho Corporate Bank Ltd., a unit of Japan’s third- biggest banking group by market value. “People are trying to push euro lower because of that caution.”
The ZEW Center for European Economic Research may say its index of German investor and analyst expectations, which aims to predict developments six months in advance, declined to minus 55.8 in December, according to the median estimate in a Bloomberg News survey of economists before today’s report. That would be the lowest reading since October 2008.
The euro has fallen 1.6 percent in the past month, the worst performance among 10 currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has strengthened 3.1 percent and the yen has advanced 2.1 percent.
The Federal Reserve will hold a policy meeting today, at which the U.S. central bank is expected to keep its target rate in a range of zero to 0.25 percent, according to a poll of economists.
Fed Meeting
While Fed Vice Chairman Janet Yellen, Governor Daniel Tarullo and Fed Bank of New York President William C. Dudley have signaled more mortgage-bond purchases are possible as part of the central bank’s asset-buying program, known as quantitative easing, or QE, about 49 percent surveyed by Bloomberg see the Fed announcing additional debt buying next year. That’s down from more than two-thirds before the Fed’s November meeting.
“The recent improvement in the U.S. economy has decreased the expectations for an expansion of QE into the mortgage- backed-securities market,” Emma Lawson, a currency strategist at National Australia Bank Ltd. in Sydney, wrote in a note to clients today. “The expectation for unchanged QE may provide some support for the U.S. dollar.”
Retail sales in the U.S. probably increased 0.6 percent last month after a 0.5 percent gain in October, a Bloomberg survey of economists showed before the Commerce Department releases the data today.
India’s rupee dropped after data yesterday showed the nation’s factory output in October shrank seven times more than economists had estimated.
The rupee declined 1.1 percent to 53.4225 per dollar, after earlier touching a record low of 53.4300.
To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.
