SF: Euro Falls Toward One-Week Low Versus Dollar Before ECB Meeting
Feb. 6 (Bloomberg) -- The euro fell toward a one-week low versus the dollar as European Central Bank policy makers prepare to meet tomorrow amid political and banking turmoil that threatens to renew the region’s sovereign-debt crisis.
The 17-nation currency slid against most of its 16 major peers as Spain’s premier faced opposition calls to resign and investors waited to see whether Italy’s Banca Monte dei Paschi di Siena SpA will disclose today the size of losses it hid in 2008 and 2009 using derivatives. The yen weakened to a 32-month low against the dollar on speculation Japan will select a new central-bank chief committed to boosting monetary easing. Australia’s dollar slumped as data showed retail sales declined.
“There is a significant risk of something happening at the ECB meeting, and that’s why the market will sell ahead of it,” Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in New York, said in a telephone interview. “We’ve seen the market being whipsawed, up and down, on the euro-dollar side, essentially mostly range trading.”
The euro fell 0.5 percent to $1.3513 at 8:32 a.m. New York time, after declining to $1.3459 yesterday, the lowest since Jan. 29. It slipped 0.6 percent to 126.44 yen after climbing to 127.71, the strongest since April 2010. The yen rose 0.1 percent to 93.56 per dollar, after depreciating to 94.06, the weakest level since May 2010.
Rajoy Allegations
Spain’s Prime Minister Mariano Rajoy faces calls to step down amid contested reports of corruption in his party. He has imposed the harshest austerity measures in Spain’s democratic history to curb the budget deficit and lower borrowing costs.
Monte Paschi, the world’s oldest lender, said on Jan. 17 it may be forced to restate earnings after Bloomberg News reported that it used derivatives to obscure losses. Accounting irregularities also led to a criminal investigation targeting former management. The bank’s board is meeting in Siena today to discuss the impact on its balance sheet.
“The banking scandal in Italy, plus the Italian elections and the Spanish scandal and economic issues, all mean that there are still risks for the euro that will cap the upside,” said Jane Foley, a senior currency strategist at Rabobank International in London.
Italian 10-year government bond yields have climbed 20 basis points, or 0.20 percentage point, to 4.53 percent this week amid concern about the possible success of former premier Silvio Berlusconi at this month’s parliamentary election.
Gap Narrows
Berlusconi, who is appealing a four-year sentence for tax fraud while standing trial in an unrelated case on charges of paying a minor for sex and abusing his office, has narrowed the gap to the center-left bloc led by Democratic Party leader Pier Luigi Bersani to within the margin of error of an opinion poll for the first time before Feb. 24-25 elections.
Investors should stop buying the euro against the dollar, George Saravelos, a currency strategist at Deutsche Bank AG in London, wrote in an e-mailed note today. The bank recommended buying the shared currency in August and now believes most of the factors supporting it are “largely priced in,” he wrote.
“We think now is a good time to take profits on our euro- dollar longs,” Saravelos wrote. “We’re turning more neutral on euro-dollar, looking for a $1.35-1.40 range for the rest of the first quarter.” A long position is a bet an asset will rise.
Biggest Advance
The euro has strengthened 2.9 percent this year, the biggest advance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 0.2 percent and the yen tumbled 7.9 percent, the largest decline.
Japan’s Prime Minister Shinzo Abe will present his candidate for the next BOJ governor to opposition parties after a visit to the U.S. this month, public broadcaster NHK reported today, without saying where it got the information. Shirakawa’s exit coincides with the departure of two deputy governors.
Abe has repeatedly said he wants the BOJ to take responsibility for the 2 percent inflation target it agreed to set last month. His government has defined ending deflation as central to efforts to revive the world’s third-biggest economy.
“Moves in the yen hinge on how strong the government and BOJ’s will is to weaken the currency,” said Daisuke Karakama, a market economist in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan’s third-largest banking group by market value.
Australia’s dollar declined against all but one of its 16 major peers as the retail sales report added to signs the Reserve Bank will cut interest rates next month.
Retail sales fell 0.2 percent in December, the statistics bureau said in Sydney today. The median estimate of economists surveyed by Bloomberg was for 0.3 percent growth.
The so-called Aussie declined 0.8 percent to $1.0308, after falling to $1.0297, the lowest since Nov. 16. It slid 0.9 percent to 96.46 yen.
--Editors: Kenneth Pringle, Greg Storey
To contact the reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; John Detrixhe in New York at jdetrixhe1@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
