BLBG: Euro Declines as Germany’s Schaeuble Says Region’s Rescue Fund Has Limits
The euro dropped against most of its major counterparts after Germany’s Finance Minister Wolfgang Schaeuble said his country opposes a “blank check” for the euro-area rescue fund to purchase bonds on the secondary market.
The dollar touched a record low versus the Swiss franc as a vote on Speaker John Boehner’s plan to cut the U.S. deficit was postponed. The Australian dollar was the biggest winner versus the greenback among major currencies as consumer prices rose more than forecast. The 17-nation euro fell from a three-week high against dollar on renewed concern politicians are struggling to contain the region’s sovereign-debt crisis.
“You had Schaeuble sending a message to his troops saying the EFSF is not an automatic buyer of peripherals,” said Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in London, referring to the European Financial Stability Facility. “There’s a natural tendency for people wanting to get rid of these positions anyway.”
The euro dropped 0.4 percent to $1.4455 at 8:37 a.m. in New York, from $1.4511 yesterday, after touching $1.4536, the highest level since July 5. The shared currency weakened 0.4 percent to 112.51 yen, from 113.01. The dollar slid 0.1 percent to 77.78 yen after touching 77.57, the lowest level since March 17. The dollar was little changed versus the Swiss franc at 80.16 centimes after reaching a record low 79.96.
Durable Goods
The dollar fell against the yen after the Commerce Department reported that orders for U.S. durable goods unexpectedly fell 2.1 percent in June after a 1.9 percent gain in the previous month. The median forecast of 76 economists in a Bloomberg News survey was for a 0.3 percent increase.
The Australian dollar surged to a record today after the Bureau of Statistics said consumer prices rose 0.9 percent in the second quarter, compared with the median forecast of a 0.7 percent gain.
Swaps traders reduced bets on an interest-rate cut in Australia after the report, according to a Credit Suisse Group AG index.
The Aussie increased 0.8 percent to $1.1045 after reaching $1.1081, the highest level since the currency began trading freely in 1983.
The euro fell against most of its 16 major counterparts tracked by Bloomberg after Schaeuble echoed remarks by Chancellor Angela Merkel, who said a day after the July 21 summit of European leaders that she’s opposed to allowing the currency region’s 440 billion-euro ($637 billion) fund unconditional bond-buying in the secondary market.
‘Tight Conditions’
“In the future such purchases must only take place under very tight conditions, when the ECB establishes that there are extraordinary circumstances in financial markets and dangers to financial stability,” Schaeuble said in a letter to German lawmakers summarizing the results of the summit.
The euro rallied versus the dollar last week after European leaders agreed to a new bailout for Greece and expanded the role of the region’s rescue fund.
President Barack Obama threatened a veto of Boehner’s two-step plan to raise the $14.3 trillion debt ceiling and cut $3 trillion in expenditure. A vote on the measure had been scheduled for today and was postponed until tomorrow. Treasury Secretary Timothy F. Geithner has said the U.S. will run out of options to prevent a default on Aug. 2.
U.S. Rating Outlook
A cut of the top AAA credit rating for the U.S. would likely raise the nation’s borrowing costs by increasing Treasury yields by 60 to 70 basis points over the “medium term,” JPMorgan Chase & Co.’s Terry Belton said yesterday on a conference call hosted by the Securities Industry and Financial Markets Association. A basis point is 0.01 percentage point.
Standard & Poor’s reiterated on July 21 that the chance of a downgrade is 50 percent in the next three months and said it may cut the nation as soon as August.
“Looking for catalysts to sell the dollar is no problem at all,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “If politicians fail to reach an agreement, dollar selling will accelerate. Even if they do agree, spending cuts will slow the U.S. economy.”
Bank of Japan board member Hidetoshi Kamezaki said today he’s watching the yen’s gains with great caution as they could damage the economy. The BOJ will take needed policy action proactively, he said.
Group of Seven nations sold the yen on March 18 after it reached a postwar record of 76.25 to the dollar the previous day, saying in a statement they wanted to reduce “excess volatility and disorderly movements.”
Japan’s Finance Ministry sold 692.5 billion yen ($8.9 billion) that month in its first intervention since a unilateral action in September.
“I guess Japan has already got a nod from the U.S. on an independent intervention,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp. a currency margin company. “It won’t come about straight away, but preparations must have been done.”
To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
