The euro fell to a 10-year low against the yen amid concern the European Central Bank will inject more cash into the financial system to avoid a credit crunch from the region’s debt crisis.
The 17-nation currency dropped to the weakest since January versus the dollar as Italy sold 7.02 billion euros ($9.06 billion) of debt due from 2014 to 2022, less than its original target of up to 8.5 billion euros. The ECB said yesterday its balance sheet climbed to a record after it increased lending to banks in the region last week. The yen strengthened against most of its major counterparts as speculation Europe’s debt crisis will worsen spurred demand for safer assets.
“Things are not looking good in Europe and that could continue to weigh on the euro,” said Thio Chin Loo, a Singapore-based senior currency analyst at BNP Paribas SA. “The size of the balance sheet of the ECB suggests banks need help, and the central bank may expand it further. There’s also concern about government funding early next year when lots of debt will come due.”
The euro dropped 0.5 percent to 100.41 yen at 10:45 a.m. in London after declining to 100.33, the lowest level since June 2001. The common currency weakened 0.4 percent to $1.2896 after falling to $1.2888, the least since Jan. 10. The yen appreciated 0.1 percent to 77.85 per dollar.
The ECB’s balance sheet expanded to a record 2.73 trillion euros, the Frankfurt-based central bank said yesterday. Lending to euro-area banks jumped 214 billion euros to 879 billion euros in the week ended Dec. 23, the ECB said.
Three-Year Loans
The central bank last week awarded 523 banks three-year loans totaling a record 489 billion euros to encourage lending to companies and households and prevent a credit shortage. Policy makers have resisted calls to step up their government bond purchases (ECBCSMP) to cap borrowing costs in Europe’s peripheral nations, choosing instead to assist the region’s financial system with unlimited cheap loans.
“The ECB, for the foreseeable future, will not drain liquidity once per month as it always has done,” said Robert Rennie, Sydney-based chief currency strategist at Westpac Banking Corp., Australia’s second-largest lender. “It gives you greater confidence that this is more formal quantitative easing. Both on an outright and a cross basis, the risks still do lie to the downside for the euro.”
Italy Sale
Italy sold 2.5 billion euros of 5 percent bonds due in March 2022 at an average yield of 6.98 percent, down from 7.56 percent at the previous auction of the securities on Nov. 29. Investors bid for 1.34 times the amount allotted, compared with a so-called bid-to-cover ratio of 1.36 last month.
The Treasury sold 9 billion euros of 179-day bills at a yield of 3.251 percent yesterday, down from 6.504 percent at the previous auction of similar-maturity debt on Nov. 25. The nation also sold zero-coupon notes due in September 2013 at 4.85 percent, versus 7.81 percent in November.
Italy expects to raise almost 450 billion euros from debt sales next year, enough to cover 202 billion euros of maturing bonds and finance a 23.6 billion-euro deficit, Maria Cannata, director of public debt, said in a Dec. 24 interview with newspaper Il Sole 24 Ore.
“The funding requirement, at least based off known redemptions for Italy through the first quarter, is truly frightening,” Westpac’s Rennie said.
Sentiment Worsens
The euro stayed lower after a report showed Italian business confidence fell to the lowest in two years in December.
The manufacturing-sentiment index (ITBCI) dropped to 92.5, the least since December 2009, from a revised 94 in November, the national statistics institute Istat said. Economists had predicted a reading of 93.7, according to a Bloomberg survey.
The euro has depreciated 1.8 percent this year as Europe’s debt crisis intensified, according to Bloomberg Correlation- Weighted Indexes, which track 10 develop-nation currencies. The dollar rose 1.9 percent, and the yen gained 4.9 percent.
The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the U.S. currency against those of six major trading partners, gained for a second day, adding 0.2 percent to 80.707.
Demand for the dollar was tempered before a U.S. report that economists said will show pending home sales increased last month, damping demand for the relative safety of the greenback.
Pending sales (USPHTMOM) of previously owned homes rose 1.5 percent in November from the previous month, according to economists surveyed by Bloomberg before the figures are released. The gauge increased 10.4 percent in October.
Malaysia’s ringgit slid to a one-week low before a report forecast to show economic growth slowed in Singapore, its second-largest export market.
Singapore’s gross domestic product (SGDPYOY) expanded 4.3 percent in the fourth quarter from a year earlier after increasing 6.1 percent in the previous three months, the Bloomberg survey showed before the Jan. 3 report.
The ringgit declined 0.5 percent to 3.1795 per dollar after falling to 3.1820, the weakest since Dec. 21.
To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Keith Jenkins in London at kjenkins3@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
