BLBG:Euro Touches 4-Month Low After Fitch Downgrades Greece
The euro sank to a four-month low, extending declines to a third-straight week, amid concern Europe’s sovereign-debt crisis is worsening.
The 17-nation currency declined to the weakest in three months versus the yen after Fitch Ratings downgraded Greece’s long-term credit rating, citing heightened risk that the nation may not be able to sustain membership in the monetary union. The euro also fell as rising borrowing costs in Spain spurred speculation the crisis is spreading. The Australian and New Zealand dollars declined for a sixth day as Asian stocks extended a global equity rout.
“The market’s very concerned about contagion and Spain probably being the biggest focus of attention after Greece,” said Thomas Averill, managing director in Sydney at Rochford Capital, a currency and interest-rate risk-management company. “If the euro breaks $1.26, there’s probably not a lot of stops going to the lows that we saw in 2010.”
The euro touched $1.2659, the weakest since Jan. 17, before trading at $1.2668 at 2:07 p.m. in Tokyo, 0.2 percent below yesterday’s close. The shared currency slid 0.2 percent to 100.51 yen after earlier touching 100.47, the lowest since Feb. 7. The dollar fetched 79.35 yen from yesterday, when it dropped to 79.14, the weakest since Feb. 17.
The euro has fallen 2 percent against the greenback since May 11, a third weekly loss that’s the longest stretch since Jan. 13. Against the yen, it has dropped 2.7 percent.
The Australian dollar lost 0.8 percent to 98.11 U.S. cents, poised for a 2.1 percent weekly drop. New Zealand’s dollar headed for 3.4 percent decline this week, and retreated 0.9 percent to 75.62 U.S. cents from yesterday.
The MSCI Asia Pacific Index (MXAP) of shares slumped 2.9 percent. The Standard & Poor’s 500 Index slid 1.5 percent to a four-month low yesterday. The Stoxx Europe 600 Index fell 1.1 percent.
Greek Rating Cut
The Greek downgrade came as leaders began campaigning ahead of the second national vote in six weeks.
“The strong showing of ‘anti-austerity’ parties in the May 6 parliamentary elections and subsequent failure to form a government underscores the lack of public and political support” for the country’s bailout from the European Union and International Monetary Fund, Fitch said in a statement yesterday.
In Spain, the cost of insuring against a default jumped to a record after the nation sold January 2015 bonds at an average yield of 4.375 percent, compared with 2.89 percent when they were last auctioned in April.
Spanish CDS
Moody’s Investors Service lowered the credit ratings of 16 Spanish banks yesterday, including Banco Santander SA (SAN), citing economic weakness and the government’s mounting budget strain. The reductions followed Moody’s May 14 downgrade of 26 Italian banks and its Feb. 13 cut of Spain’s sovereign debt.
The Dollar Index (DXY)’s “rally phase” is here to stay, according to Niall O’Connor, a technical analyst at JPMorgan Chase & Co. The gauge, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, completed a 14-day advance yesterday, the longest string of gains since its inception in 1973.
“There is still little evidence of a reversal,” O’Connor wrote in a note to clients today.
The index must fall below the key support level of 80-80.33 to reassert the short-term downward bias, he wrote. Support refers to a level where there may be an accumulation of orders to buy. The Dollar Index traded at 81.684 today.
14-Day Advance
A report from the Federal Reserve Bank of Philadelphia yesterday showed the general economic index fell to minus 5.8 this month, the lowest reading since September, from 8.5 in the previous month. Economists surveyed by Bloomberg News forecast an increase to 10. Readings less than zero signal contraction in the area covering eastern Pennsylvania, southern New Jersey and Delaware.
The Richmond Fed’s factory index probably declined to 11 this month from 14 in April, according to a separate survey before the data on May 22.
“The global market remains nervous,” said Kikuko Takeda, a London-based senior currency economist at Bank of Tokyo Mitsubishi UFJ Ltd. “We can’t buy the euro, and if the U.S. economic outlook is uncertain, yen will be bought.”
The euro has lost 5.4 percent in the past year, the second- worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen was the biggest gainer, having advanced 9.3 percent.
Azumi Watching
Japan’s Finance Minister Jun Azumi said today he is watching currency moves with great interest and more caution. Azumi said Japan will take appropriate steps if needed in the foreign-exchange market.
Gains in the yen against the dollar were limited amid speculation Bank of Japan (8301) policy makers will decide on further easing when they meet next week. Governor Masaaki Shirakawa said yesterday it’s important for the central bank to support growth.
“I think the BOJ will announce more stimulus measures, especially if dollar-yen continues to fall,” said Rochford’s Averill. “They’re going to be under a lot of pressure from the Ministry of Finance to do something.”
To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
