BLBG:Euro Near 11-Year Low Versus Yen On Spain, Italy Concern
The euro was 0.8 percent from an 11- year low against the yen amid signs Europe’s debt crisis is damping economic growth. Japan’s currency climbed even as the government said it’s ready to counter excessive moves.
The 17-nation currency held a four-day drop versus the dollar after Spanish and Italian bond yields jumped, while billionaire hedge-fund manager John Paulson was said to have told clients he sees 50 percent odds the euro will unravel. Moody’s Investors Service cut its ratings outlook for Germany and the Netherlands to negative yesterday, citing concern they’ll have to help indebted European nations. Australia’s dollar gained after a gauge of Chinese manufacturing rose.
“There are few reasons to buy the euro,” said Junichi Ishikawa, an analyst in Tokyo at IG Markets Securities Ltd. “Investors are worried that the debt crisis is spreading to Spain and Italy.”
The euro was little changed at 94.96 yen as of 6:35 a.m. in London from the close in New York yesterday when it touched 94.24, the weakest since November 2000. The yen gained 0.1 percent to 78.33 per dollar. The dollar lost 0.1 percent to $1.2125 per euro after climbing to $1.2067 yesterday, the strongest since June 2010.
Spain will auction bills today maturing in 84 days and 175 days, followed by Italian offerings of zero-coupon debt on July 26 and bills on July 27. Spain’s benchmark 10-year note yield jumped to 7.565 percent yesterday, the highest since November 1996. The comparable rate in Italy climbed to 6.426 percent, a level unseen since Jan. 19.
Euro Breakup
An event causing a euro-bloc breakup may happen in three months to two years, Paulson said on a conference call yesterday reviewing second-quarter performance, according to an investor who asked not to be named because the call was private. Paulson, who runs Paulson & Co., said he expects sovereign yield spreads to widen.
Moody’s said yesterday the increasing likelihood of collective support for European countries including Spain and Italy is “adversely” affecting the Aaa credit ratings of Germany and the Netherlands.
“This burden will likely fall most heavily on more highly rated member states if the euro area is to be preserved in its current form,” the ratings company said in a statement.
The Netherlands will sell debt maturing in 2014 and 2028 today. Germany, the euro region’s biggest economy, is scheduled to sell inflation-linked securities and 30-year bonds tomorrow.
Greek Troika
A composite index for the euro area’s manufacturing and services output was probably at 46.4 in July, unchanged from the prior month, according to the median estimate of economists surveyed by Bloomberg News. London-based Markit Economics will release the data today and a reading below 50 indicates contraction.
Officials from Greece’s troika of international creditors - - the European Commission, European Central Bank and International Monetary Fund -- arrive in Athens today amid doubts that the nation will meet commitments attached to bailout funding.
“The yen is being bought on the back of risk-off sentiment in markets,” said Yoshitsugu Fujita, assistant vice president of global markets in New York at Sumitomo Mitsui Trust Bank Ltd. “I expect speculation to grow again that Greece will exit the euro zone.”
The euro has slumped 5.1 percent in the past three months, the worst performance among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen has appreciated 8.8 percent during the period and the dollar rose 4.3 percent.
Azumi Pledge
Japan’s Finance Minister Jun Azumi reiterated today that he is ready to take decisive action on the yen if needed. The currency’s advances don’t reflect the nation’s economic fundamentals, he told reporters today.
The yen tends to strengthen during periods of financial turmoil because Japan’s current-account surplus makes it less reliant on foreign capital. A stronger currency hurts exporters by making their goods more expensive overseas.
Gains in the dollar were limited before U.S. data this week that economists say will show the world’s largest economy is losing steam, fanning speculation the Federal Reserve will ease monetary policy further, debasing the currency.
Orders for durable goods probably rose 0.3 percent in June after a 1.3 percent gain in May, according to a Bloomberg survey of economists taken before the Commerce Department releases the figures on July 26. Data on July 27 is forecast to show gross domestic product expanded at an annualized 1.4 percent in the second quarter, the slowest pace in a year.
Bond Rates
Fed Chairman Ben S. Bernanke said last week that policy makers are “looking for ways to address the weakness in the economy should more action be needed to promote a sustained recovery in the labor market.” The Fed will hold a two-day policy meeting starting July 31.
Ten-year Treasury yields slid to an all-time low of 1.396 percent yesterday. Two-year rates dropped below 0.2 percent for the first time since September.
“Further easing by the Fed is likely to put U.S. bond yields under pressure, resulting in a weaker dollar versus the yen,” said Ishikawa of IG Markets. “People are watching U.S. GDP data this week to see if it confirms growth is slowing down.”
The Australian and New Zealand dollars snapped two-day losses after HSBC Holdings Plc and Markit Economics said a preliminary July reading of their manufacturing gauge for China rose to 49.5 from a final 48.2 for June. China is Australia’s biggest trading partner and New Zealand’s second-biggest export market.
“We’re all feeling a bit gloomy at the moment, so the fact that we ended up with a less gloomy number in China is quite encouraging,” said Annette Beacher, Singapore-based head of Asia-Pacific research at TD Securities Inc. “The Aussie has taken some heart from that.”
The so-called Aussie rose 0.4 percent to $1.0302. New Zealand’s dollar, known as the kiwi, climbed 0.6 percent to 79.17 U.S. cents.
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: Rocky Swift at rswift5@bloomberg.net.
