BLBG:Euro Declines As Bundesbank Says Bond-Buying Plan Entails Risks
The euro fell for a second day versus the dollar after Germany’s Bundesbank stepped up criticism of proposals that the European Central Bank buy government bonds to quell the region’s debt crisis.
Europe’s shared currency slid from withing 0.6 percent of a six-week high versus the yen and declined against most of its major peers as comments from the German central bank highlighted divisions over how to end the turmoil. The euro rose earlier after Spiegel magazine reported the ECB’s governing council is considering setting yield limits on euro-region bonds. The Australian dollar climbed as stock gains boosted demand for higher-yielding assets.
“The euro has moved lower on these comments,” said Chris Walker, a currency strategist at UBS AG (UBSN) in London. They “underline the Bundesbank stance, that it doesn’t really want to take on too much risk on its balance sheet.”
Europe’s shared currency weakened 0.2 percent to $1.2315 at 7:09 a.m. New York time, after rising as much as 0.3 percent. It depreciated 0.2 percent to 97.92 yen, after advancing 0.2 percent. It reached 98.41 yen on Aug. 17, the most since July 6. The dollar was little changed at 79.52 yen. Australia’s dollar rose 0.3 percent to $1.0454.
“Government bond purchases by the Eurosystem are to be seen critically and entail significant stability risks,” the Bundesbank said in its monthly report today. The new program “could be unlimited” and decisions about potentially far greater sharing of solvency risks should be taken by governments, not by central banks, it said.
Yield Limits
The Frankfurt-based ECB may set limits on yields by pledging unlimited bond purchases, Spiegel reported yesterday, without saying where it obtained the information. The policy will be decided on at the Sept. 6 governing council meeting, the magazine said. An ECB official declined to comment on the report.
The euro has declined 9 percent in the past year, the worst performance after the Swiss franc among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar rose 7.6 percent, while the yen added 1.5 percent.
Europe’s shared currency will weaken to $1.20 in the next three months, Walker predicted.
To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
