BLBG: Euro Weakens as Finance Ministers Tackle Debt Deadline; Yen, Won Decline
The euro fell for the first time in three days against the dollar as European finance ministers attempt to meet a self-imposed deadline for funding from the International Monetary Fund to address the region’s debt crisis.
The dollar rose against the yen after North Korean said leader Kim Jong Il died, spurring concern instability may increase in Asia. South Korea’s won tumbled to a two-month low as the nation boosted border and coastal defenses and considered raising alert levels for the military. Sweden’s krona strengthened before tomorrow’s central bank meeting.
“What we need at this point is a decision on behalf of euro-zone leaders,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp. “The market feels comfortable with the euro at $1.30. The market is looking for further incentive to start selling the euro and so it’s predisposed to selling on bad information and holding on good information.”
The euro weakened 0.3 percent to $1.3012 at 12:28 p.m. in New York. The dollar strengthened 0.3 percent to 77.97 yen. Europe’s common currency was little changed at 101.45 yen.
The won weakened 1.4 percent to 1,174.80, earlier touching 1,179.95, the weakest level since Oct. 7.
Annual View
Japan’s currency has advanced 4.6 percent in 2011 against nine developed-nation counterparts, according to Bloomberg Correlation-Weighted Indexes, as investors sought the safest investments amid Europe’s sovereign-debt crisis. The dollar is the next-best performer, strengthening 1.8 percent, while the euro has depreciated 1 percent.
Canada’s dollar gained as crude oil and stocks advanced after weekly losses. Canada’s currency added 0.2 percent to C$1.0362 per U.S. dollar, after weakening to C$1.0415, the least since Dec. 14.
The currency was also supported after a report showed wholesale sales increased in October for a sixth straight month, led by rising shipments of motor vehicles and machinery. Statistics Canada reported sales rose 0.9 percent compared with a forecast gain of 0.1 percent.
The Standard & Poor’s 500 Index was little changed after rising as much as 0.4 percent.
Krona Gains
Sweden’s krona strengthened against the euro for a fourth day. The nation’s central bank will tomorrow cut its seven-day repo rate a quarter-percentage point to 1.75 percent, according to 11 of 24 economists in a Bloomberg News survey. Two forecast a half-point cut, while the rest estimated an unchanged rate.
“It’s a very close call,” said Richard Falkenhall, a currency strategist at SEB AB in Stockholm. “A few people may start to think they may not move at all. That is helping the krona today.”
The Swedish currency was 0.4 percent stronger at 8.9974 per euro and appreciated 0.1 percent to 6.9169 per dollar.
Kim died of exhaustion two days ago, the official Korean Central News Agency said. His death ended his 17-year rule.
The yen dropped against most of its major counterparts amid concern a destabilization of the Korean peninsula will dim the outlook for Japan’s economy and security. Korea’s won fell against all its major counterparts.
Won Update
“It’s the uncertainty that’s going to keep the Korean won on the defensive and perhaps most Asian currencies on the defensive,” Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York, said on Bloomberg Television’s “In The Loop.” “It also comes at a bad time because we’re dealing with Europe and now this.”
Bennenbroek said he expects the Korean won to weaken to 1,200 per U.S. dollar.
South Korea pledged steps by the central bank if needed to stabilize financial markets, and called in police officers for emergency duty. Japanese Prime Minister Yoshihiko Noda’s cabinet held a security meeting while the U.S. issued a statement saying the administration of President Barack Obama is “closely monitoring” the situation.
The 17-nation European currency has depreciated 2.8 percent versus the dollar this year and 6.6 percent against the yen. After falling to its weakest level against the dollar since January, the euro is poised to depreciate further as measures in the derivatives market show traders expect the blueprint unveiled by European leaders this month for a closer fiscal accord will fail to stem the declines.
Butterfly Signal
The six-month euro-dollar option butterfly, which measures the gap in implied volatility of out-of-the money, or virtually worthless, options and those that would likely produce a profit, was 0.55 percentage point today. That compares with the 0.76 percentage point reached on Sept. 26, the highest since April 2009, and is up from 0.36 in March, when EU leaders agreed on a retooled bailout plan for the region’s most indebted nations.
The so-called 25-delta risk reversal rate had a 3.64 percentage point premium for euro puts over calls during the first three trading days of last week, before retreating to end the week at 3.12 percentage points and to trade today at 2.99 percentage points.
Euro-area finance ministers held a conference call to discuss 200 billion euros ($261 billion) in additional funding through the International Monetary Fund and the mechanics of a so-called fiscal compact that was negotiated at a Dec. 9 European Union summit, according to two people familiar with the planning.
To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; Paul Dobson in London at pdobson2@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
