BLBG:Euro Drops Against Major Peers Before Spain Debt Auctions
The euro declined to an eight-week low against the yen before Spain auctions bills and bonds amid concern Europe’s debt crisis will continue.
The 17-nation currency slid to its weakest versus the British pound since September 2010 after the cost of protecting Spain’s debt from nonpayment climbed to a record. China’s yuan retreated after the central bank doubled the so-called trading band of the currency. The yen strengthened against all of its 16 counterparts as Asian stocks extended a global rout, boosting demand for haven currencies.
“The euro does look like it’s vulnerable to breaking down a lot further in the short term,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp. (WBC), Australia’s second-largest lender. “If Spain’s yields continue to rise, then they’re going to get to a point where they may well need some form of assistance, as Greece did.”
The euro fell to 104.82 yen, the lowest since Feb. 20, before trading at 104.93 as of 6:35 a.m. in London, 0.9 percent lower than the close on April 13. It lost 0.4 percent to $1.3025, after touching $1.3009, the lowest since March 15. The single currency dropped as much as 0.4 percent to 82.21 U.K. pence, a level unseen since September 2010. The yen appreciated 0.5 percent to 80.57 per dollar after reaching 80.45, the strongest since Feb. 29.
Spain will sell 12-month and 18-month bills tomorrow, followed by April 19 auctions of debt due in 2014 and 2022. Yields (GSPG10YR) on the nation’s 10-year notes soared as much as 18 basis points to 6 percent on April 13, edging toward the 7 percent level that pushed Greece, Ireland and Portugal into rescues.
Bond Purchases
Klaas Knot, a member of the European Central Bank governing council, said on April 13 that he doesn’t see a “good reason” for the ECB to resume government bond purchases. “I think there has been an overreaction to the unfortunate communication surrounding Spain,” he said in Amsterdam.
Jaime Garcia-Legaz, Spain’s deputy economy minister, said in an interview on April 13 that the ECB should “step up purchases of bonds.”
Five-year credit-default swaps linked to Spain’s bonds jumped to 502.5 basis points at the end of last week, the highest on record going back to October 2004, according to data from CME Group Inc.’s CMA. The swap premiums rise when investors’ perception of creditworthiness deteriorates.
Risk Aversion
The euro has lost 0.5 percent in the past month against a basket of the 10 currencies tracked by Bloomberg Correlation- Weighted Indexes. The yen was the best performer with a 4.7 percent gain.
“There seems to be renewed fear that the euro-zone crisis has taken a turn for the worse,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “Stock indexes are all in the red, so that shows that there’s risk aversion at the moment. The interest is to buy back the yen.”
The MSCI Asia Pacific Index of shares retreated 0.8 percent after the MSCI All-Country World Index (MXWD) slid 1.1 percent on April 13. The Chicago Board Options Exchange Volatility Index, known as the VIX (VIX), jumped 14 percent to 19.55 the same day, the biggest advance since March 6.
The yuan weakened 0.2 percent to 6.3127 per dollar after the People’s Bank of China said on April 14 that the currency can move as much as 1 percent against the dollar from a so- called daily fixing rate, compared with the previous limit of 0.5 percent.
China’s Yuan
“The yuan is weaker as investors are again worried about Europe and a bit on China’s growth,” said Tommy Ong, the Hong Kong-based senior vice president of treasury and markets at DBS Bank (Hong Kong). “It’s an opportune time for China to widen the band when appreciation expectations aren’t so strong. That won’t induce any massive speculative bets on its currency.”
The Dollar Index (DXY) was 0.1 percent from a one-month high before U.S. data forecast to show retail sales increased last month, damping speculation the Federal Reserve will add to monetary easing.
Four members of the Federal Open Market Committee judged that monetary policy should be tightened from 2015, while two preferred 2016, according to a Jan. 25 statement from the Fed. The central bank bought $2.3 trillion of bonds from 2008 to 2011 in two rounds of quantitative easing.
Fed Policy
“Any revisions from the six doves who at the January FOMC meeting only forecast interest rates being increased from 2015 and 2016 will further help reduce fears the Fed will engage in a third round of quantitative easing,” Mansoor Mohi-uddin, head of foreign-exchange strategy in Singapore at UBS AG, wrote in an e-mailed note on April 14. “We continue to see the Fed refraining from renewed money printing this year.”
Retail sales rose 0.3 percent in March after a 1.1 percent gain the prior month, according to the median estimate of economists surveyed by Bloomberg News. The Commerce Department will release the figure today.
IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, advanced 0.3 percent to 80.084 after reaching 80.177 on April 5, the highest since March 16.
To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.
