BLBG:Euro Falls Versus Dollar Before Europe Debt Sales, Industrial Output Data
The euro dropped versus the dollar before a report that may signal Europe’s sovereign-debt crisis is hurting the region’s prospects for economic growth.
The 17-nation currency slid against most of its major peers before Spain and Italy sell securities this week amid concern the nations will struggle to meet funding needs. Gains in the dollar were limited before a report tomorrow forecast to show inflation is slowing in China, spurring speculation the Asian nation’s central bank will have more scope to support growth in the world’s second-biggest economy. Thailand’s baht fell as investors reduced holdings of the nation’s stocks.
“We see Europe deteriorating this year with the economy moving formally into recession,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp., Australia’s second-largest lender. “Over the next three months, the euro may drop to at least $1.20.”
The euro lost 0.2 percent to $1.2755 as of 6:55 a.m. in London from yesterday in New York. It fell 0.1 percent to 98.12 yen. The dollar was at 76.92 yen from 76.85.
Industrial production in the euro region is forecast to have shrunk for a third month in November, according to a Bloomberg News survey of economists before the European Union’s statistics office in Luxembourg releases the data tomorrow. The median estimate is for a 0.3 percent contraction.
The European Central Bank will keep its key interest rate at 1 percent at a policy meeting tomorrow, the median estimate in a separate Bloomberg poll showed. That would follow quarter- point rate reductions at each of the bank’s last two meetings.
‘Warning Signal’
Spain will auction as much as 5 billion euros ($6.4 billion) of bonds due 2015 and 2016 tomorrow, while Italy is scheduled to sell 12 billion euros of bills. Germany will auction 4 billion euros of five-year notes today.
“Even a small sign that says the German bond auctions aren’t going so well is a warning signal for Europe, suggesting that even the best of the European economies is being affected by the deterioration in credit quality,” said Westpac’s Speizer. “We’re watching all of them.”
Fitch Ratings said yesterday Italy faces a “significant chance” of a downgrade. The company is reviewing nations including Italy and Spain and will make a decision by the end of the month. Fitch’s action followed reviews announced by Standard & Poor’s and Moody’s Investors Service on euro-area nations.
Greek Debt Restructuring
The euro also weakened after Reuters reported hedge funds may resist a 100 billion-euro plan to restructure Greece’s debt. Greek Prime Minister Lucas Papademos expects to have an outline for the plan next week, when talks on the terms for a second financing deal with European Union and International Monetary Fund officials start in Athens.
German Chancellor Angela Merkel and IMF Managing Director Christine Lagarde discussed Greece and efforts to resolve the euro-area debt crisis during talks in Berlin yesterday. They “renewed their commitment to the goal of strengthening growth and employment in Europe in a sustainable way,” Steffen Seibert, Merkel’s chief spokesman, said in a text message.
The dollar declined against 15 of its 16 most-traded counterparts yesterday on speculation China’s central bank may take steps to spur growth.
China’s Inflation
Consumer prices in China may have risen 4 percent in December from a year earlier, according to the median estimate of economists surveyed by Bloomberg before a report from the statistics bureau tomorrow. The figure was 4.2 percent the previous month.
The People’s Bank of China announced in November that it would cut the reserve requirement ratio for the nation’s banks by 50 basis points, the first reduction since 2008.
Demand for the dollar was also limited before a report that may signal economic recovery in the U.S. is gaining momentum.
Retail sales in the U.S. probably advanced 0.3 percent last month after gaining 0.2 percent in November, the median forecast in a separate Bloomberg survey showed. The Commerce Department will release the figures tomorrow.
“The good economic and corporate data from the U.S. is painting a more positive commodities picture for the year,” said Kurt Magnus, executive director of currency sales in Sydney at Nomura Holdings Inc., Japan’s biggest brokerage. That “is helping currencies like the Australian and New Zealand dollar against the U.S. dollar.”
Best Performers
The Australian dollar has advanced 1.2 percent this month, while its New Zealand counterpart gained 2.8 percent, the two best performers among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.
Australia’s currency slid 0.1 percent to $1.0301 and was little changed at 79.24 yen. New Zealand’s dollar gained 0.1 percent to 79.52 U.S. cents.
Thailand’s baht approached its weakest level in 16 months against the dollar after exchange data showed international investors sold $57 million more local shares than they bought yesterday, their biggest net sales since Dec. 15.
The baht dropped 0.3 percent to 31.75 per dollar, according to data compiled by Bloomberg. The currency touched 31.83 on Jan. 9, the weakest level since August 2010.
To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net
