BLBG:Euro Heads For Second Weekly Decline As Moody’s Downgrades Italy
The euro headed for a second weekly loss against the dollar after Moody’s Investors Service cut Italy’s credit rating, adding to concern the region’s policy makers are failing to contain the debt crisis.
The 17-nation currency approached a six-week low versus the yen as Moody’s cited Italy’s deteriorating economic outlook, saying it may fail to meet its budget targets. The euro pared losses versus the greenback today after Italian borrowing costs fell at a debt sale. The yen was poised for a weekly gain against all its 16 major counterparts after China’s growth slowed, underpinning demand for safer assets.
“It seems technically very tough to argue against euro weakness,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “There doesn’t seem to be any reason to buy it from a fundamental perspective with pressures on the peripheral bond markets.”
The euro dropped 0.1 percent to $1.2194 at 7:51 a.m. in New York, extending this week’s loss to 0.8 percent. The single currency declined 0.1 percent to 96.66 yen, and slipped 0.5 percent to 78.73 pence, after sliding to 78.63 pence, the weakest since November 2008. The yen strengthened 0.1 percent to 79.27 per dollar.
Moody’s lowered Italy’s government bond rating by two levels to Baa2 and said further downgrading was possible, according to a statement issued today in Frankfurt. That’s two steps above junk, one above Spain, and makes the country’s grade the same as those of Kazakhstan, Bulgaria and Brazil.
Italian Downgrade
“Italy’s downgrade brings the market’s attention back to the risks surrounding the European debt crisis,” said Kengo Suzuki, a foreign-exchange strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank by market value. “The euro will continue to decline.”
Italian 10-year bonds stayed lower even after demand rose as the nation sold 5.25 billion euros of debt maturing between 2015 and 2023. The yield on the 10-year security advanced seven basis points, or 0.07 percentage point, to 5.98 percent.
The Moody’s downgrade may pave the way for “massive selling” of Italian bonds, according to Shinji Kunibe, chief portfolio manager for fixed-income investment in Tokyo at Nissay Asset Management Corp., which oversees the equivalent of $69 billion. “I have an underweight bias on the euro.”
Norway’s Krone
The Norwegian krone rose to the strongest since March against the euro, approaching the rate that prompted the central bank to cut interest rates to limit the currency’s gains.
The krone strengthened as much as 0.3 percent to 7.4325 per euro, the highest level since March 9. Norway’s currency appreciated to a nine-year high of 7.3884 per euro on March 5.
The Norges Bank unexpectedly moved to curb the currency’s gains on March 14 by cutting its benchmark rate by a quarter- percentage point to 1.5 percent.
“Obviously these levels are concerning the central bank because we’re closing in on record highs,” said Magne Oestnor, a currency analyst at DNB ASAO in Oslo. Still, “we need to see a further strengthening before it will affect the interest rate path for Norges Bank.”
China’s growth slowed for a sixth quarter, the government reported today. Singapore’s gross domestic product shrank in the three months through June, according to the Trade Ministry.
“It’s just confirmation that the risks to global growth are tilted to the downside,” Sacha Tihanyi, a strategist in Hong Kong at Scotiabank, a unit of Bank of Nova Scotia. “There’s still some support for the yen.”
Japan’s currency has gained 6.3 percent in the past three months, the best performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar rose 3.9 percent, and the euro dropped 3.9 percent.
To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net.
To contact the editors responsible for this story: Daniel Tilles at dtilles@bloomberg.net
