BLBG:Euro Declines Versus Dollar on Debt Crisis; Won Advances
The euro fell for the first time in three days against the dollar amid speculation the European Central Bank may need to restart its government bond purchase program as the region’s sovereign debt crisis intensifies.
Europe’s shared currency extended a second weekly decline against the yen after data showed Spanish banks’ loans from the central bank surged in March. South Korea’s won rose after a North Korean rocket launch failed. Australia’s dollar dropped from a one-week high against the greenback after a report showed China’s economy expanded less than analysts forecast, denting the outlook for global growth. The Dollar Index headed for a weekly loss before data forecast to show inflation slowed.
“Markets are wary about the euro,” said Simon Smith, chief economist at foreign-exchange broker FXPro Group Ltd. in London. “There’s a sense that the old problems are returning to the euro-region. The ECB buying bonds is a way of pulling markets back from severe stress, but the risk is that the market sees it as more negative than positive.”
The euro declined 0.3 percent to $1.3152 at 10:30 a.m. London time, trimming its weekly advance to 0.4 percent. It dropped 0.2 percent to 106.43 yen, heading for a 0.4 percent drop over the week. The yen traded at 80.93 per dollar. It has appreciated 0.9 percent this week.
Positive factors for Europe’s shared currency have faded and it will probably decline below $1.30 in the next three-to- four weeks, Smith said.
Spanish Bonds
The won gained 0.5 percent to 1,135 per dollar. The U.S. military said that it tracked the launch of a North Korean rocket, with the first stage falling into the Yellow Sea, while the “remaining stages were assessed to have failed.”
Spanish government bonds headed for a second-straight weekly decline, a sign the respite in the euro-region’s debt crisis created by the ECB’s unlimited three-year loans program may be coming to an end. German bunds, Europe’s benchmark government securities, rose for the first time in three days.
Seventeen of 22 economists surveyed this week by Bloomberg predicted the ECB will be forced to resume its so-called Securities Markets Program to contain bond yields, while only one forecast it will offer another round of the unlimited three- year loans. Nine said the central bank may consider shorter- maturity loans of one or two years.
Average net borrowings by Spanish banks climbed to 227.6 billion euros last month from 152.4 billion euros in February, Bank of Spain data showed today. Lenders in the whole euro system took 361.7 billion euros, the data showed.
Aussie Falls
Australia’s dollar, known as the Aussie, slid against all of its 16 major counterparts after China said gross domestic product grew 8.1 percent year-on-year in the first quarter, the slowest expansion in almost three years.
“The market’s skew was definitely looking for a stronger number,” Jonathan Cavenagh, a Singapore-based currency strategist at Westpac Banking Corp. (WBC), Australia’s second-biggest lender, said of China’s GDP figure. “The knee-jerk reaction has been to sell risk currencies,” including the Aussie dollar.
The Australian dollar fell 0.5 percent to $1.0386 after earlier reaching $1.0453, the highest level since April 3. China is Australia’s largest trading partner.
The Aussie has advanced 0.4 percent this week, the third biggest gain among the 10 currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has declined 0.4 percent and the euro has advanced 0.1 percent.
Intercontinental Exchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, advanced 0.2 percent to 79.502. It has dropped 0.4 percent this week, reaching a 10-day low yesterday.
U.S. Inflation
U.S. consumer prices rose 0.3 percent last month after climbing 0.4 percent in February, according to the median estimate in a Bloomberg survey of economists before the Labor Department releases the figure. That would follow a report last week that showed nonfarm payrolls increased by 120,000 in March, the smallest gain in five months.
Federal Reserve Bank of New York President William C. Dudley said yesterday that it’s “too soon to conclude that we are out of the woods, as underlined by the March labor-market release,” and that he still supports holding rates close to zero through late 2014. Speeches are scheduled today from Dudley and Fed Chairman Ben S. Bernanke.
“Expectations for further easing are a factor that weighs on the dollar,” said Takuya Kawabata, a researcher at Gaitame.com Research Institute Ltd. in Tokyo, a unit of Japan’s largest currency-margin company.
The U.S. central bank bought $2.3 trillion of assets in two rounds of so-called quantitative easing from December 2008 to June 2011 to cap borrowing costs, and it has pledged to keep interest rates low through at least late 2014.
The dollar is supported against the yen by the upper end of its weekly ichimoku chart and will probably remain “resilient,” said Makoto Noji, a Tokyo-based senior debt and currency strategist at SMBC Nikko Securities Inc.
To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net.
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.
