BLBG:Euro Weakens as Spanish, Italian Yields Rise on Political
The euro weakened against the dollar and yen as Italian and Spanish government bonds declined amid political turmoil in the euro-area’s third- and fourth-largest economies, damping demand for the common currency.
The 17-member euro dropped versus all but two of 16 major peers tracked by Bloomberg as Spanish Prime Minister Mariano Rajoy faced opposition calls to resign. A poll showed Italy’s former premier Silvio Berlusconi narrowing the lead on front- runner Pier Luigi Bersani and threatening his ability to win a majority as elections loom. The yen weakened through 93 per dollar for the first time in more than 2 1/2 years. European Central Bank policy makers are scheduled to meet this week.
“It doesn’t help that the political background is a little bit more uncertain,” said Adam Cole, head of global currency strategy at Royal Bank of Canada in London. The ECB meeting “will generally be a negative background for the currency this week.”
The euro declined 0.4 percent to $1.3584 at 10:03 a.m. London time after rising to $1.3711 on Feb. 1, the strongest level since Nov. 14, 2011. It slipped 0.1 percent to 126.51 yen. The Japanese currency slid as much as 0.4 percent to 93.18 per dollar, the weakest level since May 13, 2010.
The euro will depreciate to $1.30 by year end, RBC’s Cole forecasts. That matches the median of 60 estimates compiled by Bloomberg.
Italian Spread
The yield on Italian 10-year bonds jumped six basis points, or 0.06 percentage point, to 4.39 percent. The additional yield investors demand to hold the securities instead of benchmark German bunds increased for a fourth day, reaching 269 basis points, after Prime Minister Mario Monti said the spread could widen if Berlusconi is elected later this month. Monti spoke in an interview on RTL 102.5 radio today.
The rate on similar-maturity Spanish securities climbed nine basis points to 5.31 percent. Rajoy, who says allegations of illegal payments are unfounded, travels to Berlin today to meet German Chancellor Angela Merkel.
The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S trading partners, snapped its longest losing streak since December. It climbed 0.4 percent to 79.440, halting a four-day slide.
The yen extended losses against the dollar after a record 12 straight weeks of declines, triggered by speculation the Bank of Japan (8301) will boost monetary stimulus.
Yen Slides
Japan’s currency slid as Prime Minister Shinzo Abe’s administration pressed the central bank to ease monetary policy further to beat deflation. Finance Minister Taro Aso said yesterday the government is imitating his Depression-era predecessor, Korekiyo Takahashi, who told the BOJ to underwrite government debt to fund deficit spending.
“The yen weakness story remains on expectations that the BOJ will keep its accommodative stance for a long time,” said Daisaku Ueno, a senior foreign-exchange and fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo.
The yen tumbled 16 percent over the past three months, the biggest decline among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 4.8 percent and the dollar lost 1.6 percent during the same period.
To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net.
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net.
