SF: Euro Falls Before Debt Auctions as Soros Warns of Summit Risks
June 25 (Bloomberg) -- The euro weakened before a European Union summit later this week and as Italy and Spain prepare to sell debt tomorrow amid concern Europe’s fiscal crisis is infecting bigger economies.
The 17-nation currency extended last week’s 0.5 percent drop versus the dollar as billionaire investor George Soros said the euro may dissolve if EU leaders fail to tame the financial turmoil at the June 28-29 summit. The yen strengthened on demand for haven assets as stocks slid. South Africa’s rand fell against all of its major counterparts, extending its slide to three days, after Citigroup Inc. cut China’s growth forecast over European debt concern.
“There are fairly low expectations,” Richard Franulovich, a New York-based senior currency strategist at Westpac Banking Corp., said of the European summit in a telephone interview. “I don’t think you’re going to see anything concrete that’s going to contain markets in the short run. There are a lot of reasons to be cautious on the euro.”
The euro declined 0.6 percent to $1.2499 at 9:31 a.m. New York time after touching $1.2471, the least since June 12. It tumbled 1.6 percent to 99.53 yen. The Japanese currency strengthened 1 percent to 79.65 per dollar after depreciating to 80.62, the weakest level since April 27.
Europe’s common currency has fallen 3.6 percent against the dollar this year, with the yen decreasing 3.4 percent. Japan’s currency has gained 0.2 percent on the euro.
The MSCI World Index of shares dropped 1 percent today, boosting demand for haven currencies such as the dollar and yen. The Dollar Index, which tracks the U.S. currency against those of six trading partners, advanced 0.3 percent.
Debt Sales
The shared currency is down from this year’s high of $1.3487 on Feb. 24 and has depreciated 2.5 percent this year, the most among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has risen 1.6 percent and the yen has fallen 2.2 percent.
Italy is scheduled to sell inflation-linked securities maturing in September 2016 and September 2026 tomorrow, along with as much as 3 billion euros ($3.8 billion) of May 2014 zero- coupon notes. Spain will offer three- and six-month bills the same day. The yield on Italy’s two-year note jumped 38 basis points, or 0.38 percentage point, to 4.17 percent today, with the equivalent-maturity Spanish rate 26 basis points higher at 4.70 percent.
France and Italy are urging Germany to take decisive action to end the debt crisis, now in its third year, after Spain’s 10- year bond yields jumped to more than 7 percent last week.
Soros’s View
The summit in Brussels starting June 28 is the first meeting of European leaders since Greek parliamentary elections on June 17. New Democracy leader Antonis Samaras became prime minister on his pledge to seek relief from austerity measures imposed on the country while keeping the bailout funds flowing. The Greek leader won’t attend the meeting this week after undergoing eye surgery.
“There is a disagreement on the fiscal side,” Soros said yesterday in an interview with Bloomberg Television. “Unless that is resolved in the next three days, then I am afraid the summit could turn out to be a fiasco. That could actually be fatal.”
The euro will probably drop to $1.20 by year-end as Europe’s debt crisis worsens, according to State Street Corp., which oversees $16.9 trillion in custody assets. Investors should sell the 17-nation euro and buy the U.S. dollar, said Collin Crownover, head of State Street’s currency management in Boston, Massachusetts. The greenback will strengthen because the prospect of further asset purchases by the Federal Reserve is less likely than market pricing indicates, he said.
