BLBG:Euro Falls As Crisis Clash Boosts Global Growth Concern
The euro weakened versus the dollar as prospects European leaders won’t be able to agree on how to resolve the region’s debt crisis boosted concern the global economy is stalling.
The 17-nation euro failed to rally versus the yen following a weekly loss before German Chancellor Angela Merkel meets fellow coalition leaders today after opposing joint debt sharing in the bloc. A report yesterday showed slowing growth in China’s non-manufacturing industries, while data last week indicated U.S. unemployment rose. The dollar gained as Asian stocks fell, boosting demand for safer assets. Australia’s currency dropped before Reserve Bank policy makers meet tomorrow.
“Euro bonds are one of the options to help the troubled nations of the region,” said Kengo Suzuki, a foreign-exchange strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank by market value. “German opposition is negative for the euro.”
The euro lost 0.2 percent to $1.2415 as of 7:15 a.m. in London after touching $1.2288 on June 1, the lowest since July 1, 2010. Europe’s shared currency bought 97.06 yen from 97.01 last week, when it reached 95.60, the weakest since Nov. 30, 2000. The dollar rose 0.2 percent to 78.18 yen after falling to 77.66 on June 1, the least since Feb. 14.
The MSCI Asia Pacific Index (MXAP) of shares slumped 2.2 percent.
Merkel is scheduled to meet today with coalition partners Horst Seehofer, the Bavarian prime minister who heads the Christian Social Union, sister party to the Christian Democratic Union, and Philipp Roesler, leader of the Free Democratic Party.
Economic Overhaul
Some “come along and ask for euro bonds, saying all we need are equal interest rates and everything will turn out all right,” Merkel said in a speech to CDU members in Berlin on June 2. Instead, what’s needed is an economic overhaul to tackle the lack of competitiveness in Europe, she said.
On the same day, Spanish Prime Minister Mariano Rajoy said leaders should reinforce efforts to protect euro-area banks and added his voice to calls for a more robust “banking union.”
“Spain will emerge from the storm through its own efforts and with the support of our European partners,” Rajoy said.
Spain’s 10-year bond yield climbed to 6.7 percent last week, the highest closing rate this year and approaching levels at which Greece, Ireland and Portugal sought international bailouts. The nation is scheduled to sell debt on June 7 due in 2014, 2016 and 2022.
Record Shorts
Futures traders boosted bets to a record high that the euro will depreciate against the dollar, according to data from the Commodity Futures Trading Commission on June 1.
The difference in the number of wagers on a decline in the shared currency compared with those on a gain, known as net shorts, was 203,415 in the five days ended May 29, the most since the euro’s inception in 1999. It was the third record in as many weeks.
“Scope for short covering is growing” for the euro, Mitul Kotecha, head of global currency strategy in Hong Kong at Credit Agricole CIB, wrote in an e-mailed note today. Short covering is when investors end bets an asset will decline.
The euro may face resistance around $1.2505, Kotecha wrote. Resistance is a level where sell orders may be clustered.
The dollar rallied from its lowest level in more than three months versus the yen after Japanese Finance Minister Jun Azumi pledged on June 1 to take “decisive action” on his nation’s currency should “excessive moves” persist. Azumi declined to comment on whether Japan has intervened in the currency market at a press conference today.
Best Performer
The greenback has advanced 3.3 percent this year, the best performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen has gained 1.4 percent, while the euro declined 1.6 percent.
China’s non-manufacturing purchasing managers’ index fell to 55.2 in May from 56.1 in April, the National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday. That’s the lowest reading since March 2011 when the federation started seasonally adjusting the data.
In the U.S., payrolls climbed by 69,000 last month, according to a June 1 report. The figure was lower than the most pessimistic forecast in a Bloomberg News survey. The jobless rate rose to 8.2 percent from 8.1 percent.
Rate Bets
In Australia, interest-rate swaps show central bank officials will cut the benchmark borrowing cost by at least 25 basis points to 3.5 percent tomorrow, according to data compiled by Bloomberg.
Net shorts for the Australian dollar also climbed to an all-time high last week, rising to 35,527. The so-called Aussie dollar lost 0.4 percent to 96.64 U.S. cents.
Malaysia’s ringgit rose for the first time in a week as some investors judged recent declines excessive. The currency’s 14-day relative strength index ended last week at 81, above the 70 threshold that signals to some traders a change in direction is likely.
The ringgit strengthened 0.3 percent today to 3.1999 per dollar, according to data compiled by Bloomberg.
To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net
To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net
