BLBG:Euro Falls, Set For Monthly Drop Before Italy Auctions
The euro was poised for the biggest monthly decline since September before a sale of Italian debt tomorrow and data this week forecast to confirm the prolonged fiscal crisis is hurting the region’s economy.
The 17-nation currency was 0.3 percent from the lowest since July 2010 after yield premiums on Spain’s securities over Germany’s rose to the most in 17 years. The Dollar Index traded near the highest in 20 months as concern Europe’s turmoil is hurting economic growth boosted demand for the safest assets.
“The European economy is deteriorating,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp. (WBC), Australia’s second-largest lender. “You have enough arguments for a short-term bounce in the euro, but beyond a week or so, I would still expect it to be much lower.”
The euro was little changed at $1.2535 as of 6:57 a.m. in London from yesterday after touching $1.2496 on May 25, the lowest since July 6, 2010. It has lost 5.3 percent in May, set for the biggest monthly drop since September. The euro traded at 99.73 yen after having lost 2 percent in the past five days to 99.67 yesterday. The yen was little changed at 79.56 per dollar.
Italy is scheduled to sell 3.5 billion euros ($4.4 billion) of five-year notes and 2.75 billion euros of 10-year debt tomorrow. The nation’s two-year yields jumped to a four-month high of 3.945 percent yesterday after the country sold zero- coupon debt maturing in 2014.
Italy is the euro area’s third-biggest economy measured by gross domestic product, followed by Spain, according to data compiled by Bloomberg.
Consumer Confidence
Consumer confidence in the euro area was at minus 19.3 in May, compared with minus 19.9 in April, according to a Bloomberg News survey before the final reading is released tomorrow. The unemployment rate climbed to 11 percent in April, the highest in data compiled by Bloomberg going back to 1990, economist forecasts in a separate survey showed before the June 1 report.
Spain is considering injecting debt issued by the government into the Bankia group, using a mechanism that would free it from raising the money from investors. The government will decide in two or three months whether to use its debt to recapitalize the nationalized lender, a spokesman for the Economy Ministry said in a phone interview yesterday.
“Europe has to dissipate any doubts about the euro,” Spanish Prime Minister Mariano Rajoy said yesterday. It “must affirm that the euro is an irreversible project and act in consequence.”
Spanish Yields
The extra yield investors demand to hold Spain’s 10-year bonds instead of similar-maturity German notes soared to 5.12 percentage points yesterday, the most since 1995, data compiled by Bloomberg showed.
Standard & Poor’s cut Spain’s credit rating on April 26 to BBB+ from A, saying there is an increasing likelihood the government will need to provide further fiscal support to the banking sector.
“Because Spain has a big share in the euro region’s economy, a further widening of the Spain-Germany yield spread will have a substantial negative impact over markets,” said Tohru Sasaki, head of Japan rates and foreign-exchange research in Tokyo at JPMorgan Chase & Co. “The sell-off of Spain’s bonds is generating risk-off sentiment,” supporting the dollar.
The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, was at 82.241, snapping a 0.2 percent decline yesterday to 82.220. It advanced to as high as 82.461 at the end of last week, a level unseen since September 2010.
Sell Pound
Citigroup Inc. recommended selling the pound against the Australian dollar after traders increased bearish bets on the so-called Aussie to the most in more than three years.
Hedge funds and other large speculators increased wagers the Australian dollar will decline versus the U.S. currency to 16,898 in the week ended May 22, the most since September 2008, according to figures from the Washington-based Commodity Futures Trading Commission.
“Australian dollar positioning no longer looks conducive to a significant selloff,” Citigroup analysts led by Todd Elmer in Singapore wrote in a research note yesterday. “Investors were positioned long Australian dollars ahead of the selloff of the past couple of months, but positions now appear to have adjusted.”
A long position is a bet that an asset will advance.
Sterling may fall to A$1.53, the analysts wrote, which is near a 50 percent retracement from the Feb. 15 low to the May 23 high. The British currency reached a seven-month high of A$1.6186 on May 23 and was at A$1.5894 today.
To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net.
To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net.
