BLBG:Euro Touches Two-Year Low On Spanish Banks Concern
The euro fell to an almost two-year low after Spain’s borrowing costs climbed as the nation struggles to rescue its troubled banks, fueling concern Europe’s debt crisis is spreading.
The European currency slid against the yen in its longest losing streak in four months after Bank of Spain Governor Miguel Angel Fernandez Ordonez resigned a month early amid criticism over the May 9 nationalization of Bankia group, the country’s third-biggest lender. The dollar gained before data this week forecast to show European consumer confidence remained weak and the jobless rate rose across the 17 nations that share the euro. Australia’s dollar fell after retail sales decreased.
“Spanish yields have risen to the extent that the nation can’t raise funds easily, and a further gain in the yields will increase the possibility” that the country will require a bailout, said Kengo Suzuki, a foreign-exchange strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank by market value. “Even from the perspective of its economic fundamentals, the euro is susceptible to selling.”
The euro touched $1.2457, the weakest since July 1, 2010, before trading at $1.2467 as of 6:52 a.m. in London, 0.3 percent below yesterday’s close in New York. The common currency fell 0.3 percent to 99.07 yen, extending its decline to a seventh day, the longest stretch of losses since Jan. 2. The dollar was little changed at 79.47 yen.
The European currency is set for its biggest monthly side since September against both the dollar and the yen. It has lost 5.8 percent in May against the U.S. currency and 6.2 percent versus Japan’s.
Bankia Recapitalization
The euro slid as Spain backtracked on a plan to use government debt instead of cash to bail out Bankia, while Prime Minister Mariano Rajoy struggles to shore up the nation’s lenders without overburdening public finances.
An Economy Ministry spokesman said May 28 that the government was considering using an injection of treasury debt instead of cash to recapitalize BFA-Bankia, as laid out in legislation approved in February. Investors criticized the idea, which the spokesman, speaking anonymously under ministry policy, said yesterday had become a “marginal” option for the 19 billion-euro ($24 billion) rescue.
The Spanish government’s plan for Bankia was rejected by the European Central Bank, the Financial Times reported, citing unidentified officials.
Spain’s 10-year bond yields rose to the highest level since November yesterday, approaching the 7 percent mark that heralded bailouts in Greece, Ireland and Portugal.
Ordonez met Rajoy yesterday, and the premier backed his decision to leave on June 10 instead of July 12, the Madrid- based central bank said in an e-mailed statement.
Focus on Spain
The market is “focusing a little bit more on Spain than the Greek elections at the moment and of course the Spanish bank problems,” David Forrester, senior vice president for Group- of-10 foreign-exchange strategy in Singapore at Macquarie Bank Ltd., said in an interview with Bloomberg Television. The euro “can get down towards $1.20,” he said.
In Greece, most people want to see the terms of an international financial rescue revised even as they acknowledge that not abiding by austerity measures required for the funds may lead to the country leaving the euro, according to an opinion poll conducted weeks before a second general election on June 17.
An index of consumer confidence in the euro area was probably at minus 19.3 in May, compared with minus 19.9 in April, according to a Bloomberg News survey before the European Commission releases its final reading of the gauge today. The unemployment rate is projected to have climbed to 11 percent in April, the highest in data compiled by Bloomberg going back to 1990, a separate survey of economists showed before jobs data is published on June 1.
Dollar, Yen
The euro has declined 4.2 percent in the past six months, the biggest loser among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has climbed 4.1 percent, the top performer, while the yen appreciated 1.5 percent.
The 14-day relative strength index for the euro against the yen was at 23, below the 30 level that some traders see as a sign that an asset price may be about to reverse course.
“Technical indicators are signaling the euro has been oversold,” said Mizuho’s Suzuki. “Any positive catalyst is likely to trigger a rebound in the euro.”
Haven Currencies
The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, reached 82.633, the highest since September 2010, before trading at 82.575, 0.1 percent higher than the close yesterday.
“The yen and dollar are being preferred as a haven,” Mizuho’s Suzuki said.
The Australian dollar weakened after data today showed the nation’s retail sales unexpectedly fell last month.
Sales fell 0.2 percent in April from the prior month, when they advanced a revised 1.1 percent, the Bureau of Statistics said in Sydney today. The median forecast of economists in a Bloomberg News survey was for a 0.2 percent increase.
The data were “certainly worse than expected,” said Callum Henderson, global head of currency research at Standard Chartered Plc in Singapore. “The market is in risk-off mode and, as such, is continuing to look to sell into rallies in the higher-yielding currencies including the Aussie.”
Australia’s dollar dropped 0.6 percent to 97.94 U.S. cents.
To contact the reporter on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net.
To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net
