BLBG:Euro Declines to 2-Week Low on Spain Growth Concern
The euro fell to a two-week low against the dollar after Spain’s central bank said gross domestic product kept dropping at a “significant pace” this quarter, stoking concern the region’s debt crisis is worsening.
The 17-nation currency weakened for a seventh day against the yen after the German, Dutch and Finnish governments said Europe’s rescue fund should assume a limited role in banking recapitalizations. The yen rose against all its major counterparts on speculation central banks around the world will struggle to revive growth, spurring demand for safer assets. Sweden’s krona declined after a report showed consumer confidence fell more than economists forecast.
“The markets are reacting to the negative news flow we’ve seen out of Spain, which destabilizes investor sentiment and pressures the euro,” said Jeremy Stretch, head of foreign- exchange strategy at Canadian Imperial Bank of Commerce in London. “The optimism we saw priced in to markets after action from central banks is waning.”
The euro depreciated 0.4 percent to $1.2850 at 7:52 a.m. New York time after sliding to $1.2843, the weakest since Sept. 12. The shared currency dropped 0.5 percent to 99.87 yen, extending its decline over the past seven trading days to 3.3 percent. The yen rose 0.1 percent to 77.72 per dollar.
Europe’s common currency may weaken toward $1.2740, should it break below a key support level at the 200-day moving average, currently at $1.2827, Stretch said. Support refers to an area where buy orders may be clustered.
Spain Concern
Spanish government bonds slumped, with the yield on the 10- year bond rising the most this month and reaching 6 percent for the first time since Sept. 18.
Spain pledged to meet its budget goals even as data released yesterday showed government spending through August rose from a year ago and tax receipts fell. Catalan President Artur Mas called early elections for Nov. 25, as Prime Minister Mariano Rajoy struggles to gain acceptance for austerity measures. Rajoy is due to speak at the Americas Society at 1 p.m. in New York.
French household sentiment dropped to 85 in September from 86 in August, national statistics Insee said in Paris. Economists had expected a reading of 86, according to a Bloomberg News survey.
‘Weak’ Economy
“Recent data suggest that the European economy is likely to remain weak for a long time,” said Hitoshi Asaoka, a senior strategist at Mizuho Trust & Banking Co. in Tokyo. “We’re not sure whether Spain is really going to ask for a bailout” and that’s weighing on the euro, he said.
The euro has still advanced 2.1 percent against the dollar this month and 1.2 percent versus the yen amid optimism policy makers are working toward a solution for the debt crisis and after the Federal Reserve said on Sept. 13 it will buy $40 billion of mortgage-backed securities each month until the labor market improves.
Bank recapitalization “should take place based on an approach that adheres to the basic order of first using private capital, then national public capital and only as a last resort the” European Stability Mechanism, Finance Ministers Wolfgang Schaeuble, Jan Kees de Jager and Jutta Urpilainen said yesterday in a statement distributed by the Finnish Finance Ministry.
The decision may rule out the bailout fund from being used to deal with the 100 billion euros in aid Spain sought for its banks in June.
‘Lower’ Euro
“There’s concern that European authorities may be going back on their word to help recapitalize the Spanish banking system,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “We could see the euro correct even lower after its recent good run.”
The euro has weakened 3.6 percent in the past six months, the worst performance after the Swiss franc among the 10 developed-nation currencies tracked by Bloomberg Correlation- Weighted Indexes. The yen gained the most, rising 8.1 percent and the dollar strengthened 0.7 percent.
Sweden’s krona fell against all of its 16 major counterparts after the National Institute of Economic Research said its consumer confidence index dropped to 2 this month from 5.4 in August. Economists predicted a reading of 5, according to a Bloomberg survey.
The krona slid 0.6 percent to 6.6092 per dollar and weakened 0.2 percent to 8.4926 per euro.
To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net.
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
