BLBG:Euro Falls to Four-Month Low as Spain’s Debt Costs Rise
The euro fell to a four-month low as Spain’s borrowing costs rose at an auction, stoking concern that the region’s financial contagion is spreading from Greece.
Europe’s shared currency declined against most of its major counterparts as the European Central Bank said it will temporarily stop lending to some Greek banks with President Mario Draghi indicating it won’t compromise to keep Greece in the euro area. The yen extended its gain against the dollar after data showed U.S. jobless claims for unemployment benefits were unchanged last week and another report showed Philadelphia- area manufacturing decreased in May.
“European tensions are showing few signs of subsiding,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “We’re going to watch the Greek polls over the next couple of weeks. What is worrisome is that the left-wing, anti-European Union party appears to be leading some of the latest polls.”
The euro fell 0.2 percent to $1.2696 at 11:36 a.m. New York time after touching $1.2667, the weakest level since Jan. 17. The shared currency declined 1.2 percent to 100.97 yen. It earlier fell to 100.96 yen, the lowest since Feb. 7. The yen was 1 percent stronger at 79.50 per dollar.
Spain’s 10-year yield difference, or spread, over benchmark German bunds widened 10 basis points to 493 basis points and the Stoxx Europe 600 Index (SXXP) dropped 1.1 percent.
Spanish Sale
Spain sold bonds due in January 2015 at an average yield of 4.375 percent, compared with 2.89 percent when they were last auctioned in April. Investors bought bonds maturing in July 2015 at 4.876 percent, compared with 4.037 percent on May 3 and bonds due April 2016 at 5.106 percent.
Moody’s Investors Service is set to downgrade the credit ratings of Spanish banks later today, said two people with knowledge of the situation, who asked not to be identified because the decision hasn’t been announced. A spokeswoman for Moody’s in London declined to comment in a phone interview.
Borrowing costs in Europe’s most-indebted nations are rising amid speculation that Greece will leave the 17-nation euro area as political parties opposed to the terms of two international bailouts polled strongly. A fresh vote has been set for June 17.
Draghi acknowledged for the first time yesterday that Greece may exit. While the bank’s “strong preference” is that Greece stays in the bloc, the will continue to preserve “the integrity of our balance ECB sheet,” he said in a speech.
‘Heightened Uncertainty’
“The market is still mainly driven by developments in Europe -- we are going to be in a prolonged period of heightened uncertainty” and euro weakness, said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “Investors are fearful that Europe’s firewalls aren’t enough to protect against contagion. We still favor the more defensive currencies like the yen and the dollar.”
While the euro has dropped 4 percent this month against the dollar, it may be poised to consolidate in the near term if the ECB continues to provide Emergency Liquidity Assistance funding for Greek banks, Jens Nordvig, a managing director of currency research in New York at Nomura Holdings Inc., wrote in a note to clients.
“We are now booking profits on euro-dollar shorts in spot form,” Nordvig wrote. A short is a bet the price of an asset will fall. “However, we still view the risk skewed significantly to the downside over the next two months.”
If the Greek election outcome spurs the nation to begin exiting the monetary union, the euro could test the $1.20 area, Nordvig said.
Dollar Index Streak
The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, advanced for a 14th consecutive day, rising 0.1 percent to 81.46.
Jobless claims were unchanged at 370,000 in the week ended May 12, Labor Department figures showed today in Washington. The median forecast of 48 economists surveyed by Bloomberg News called for a drop in claims to 365,000.
The Federal Reserve Bank of Philadelphia’s general economic index decreased to minus 5.8 in May from 8.5. Economists forecast the gauge would rise to 10, according to the median estimate in a Bloomberg News survey. Readings greater than zero signal expansion in the area covering eastern Pennsylvania, southern New Jersey and Delaware.
Loonie, Peso
Higher-yielding currencies, including Canada’s dollar and Mexico’s peso, fell against the dollar after the weaker-than- expected data diminished investor appetite for risk. The U.S. is Canada’s and Mexico’s largest trade partner.
The loonie, as Canada’s dollar is known, fell 0.4 percent to C$1.0163 against the greenback and the peso lost 0.2 percent to 13.7878 per dollar.
Several Fed policy makers said a loss of momentum in growth may warrant more stimulus to keep the recovery on track, according to minutes of the Federal Open Market Committee’s April 24-25 meeting released yesterday in Washington. Central bankers last month affirmed their plan to hold interest rates near zero at least through late 2014 as they sought to push down an unemployment rate that has stayed above 8 percent for more than three years.
To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Emma Charlton in London at echarlton1@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
