SF: Euro Falls as Italian Borrowing Costs Increase; Franc Weakens
Nov. 14 (Bloomberg) -- The euro dropped for the first time in three days versus the dollar and yen as Italy's borrowing costs increased at a five-year note sale today, stoking concern its new government will struggle to contain debt turmoil.
The 17-nation currency slid the most against the yen and South Korean won among its 16 major counterparts tracked by Bloomberg. The Swiss franc weakened versus the dollar after a government report showed producer and import prices fell for a sixth month in October. The pound slipped as an index of employers' hiring intentions retreated.
"You have these sharp increases in bond yields, tightening in financial conditions, and now you're starting to see that it's impacting the economy," said Mark McCormick, a currency strategist at Brown Brothers Harriman & Co. in New York. "All these things are negative for the peripheral bond markets, and that's just going to weigh on the euro."
The euro depreciated 0.9 percent to 105.15 yen at 7:24 a.m. New York time, after appreciating 0.7 percent over the previous two sessions. The single currency declined 0.7 percent to $1.3654. The yen gained 0.3 percent to 77.01 per dollar.
Currencies of commodity exporters dropped as stocks and raw material prices fell. The MSCI World Index of equities lost 0.4 percent, and the Thomson Reuters/Jefferies CRB Index of raw materials fell 0.4 percent.
Brazil's real was the biggest loser against the dollar among major currencies, depreciating 1.2 percent to 1.7643. Sweden's krona fell 1 percent to 6.6857.
"Risk appetite has been gradually diminishing, and that's probably going to keep the euro pinned to the downside," said Jeremy Stretch, executive director of currency strategy at Canadian Imperial Bank of Commerce in London. "The debt dynamics in Europe remain discouraging."
Italy's Treasury auctioned 3 billion euros ($4.1 billion) of September 2016 notes, the maximum target. The yield was 6.29 percent, up from 5.32 percent at the previous auction and the highest since June 1997. Demand rose to 1.47 times the amount on offer, from 1.34 times last month.
The 10-year Italian yield rose 21 basis points, or 0.21 percentage point, to 6.66 percent, approaching the euro-era record 7.48 percent set Nov. 9.
Former European Union Competition Commissioner Mario Monti will head a new government as Italy reaches outside the political arena for a leader to restore confidence in its ability to cut the euro region's second-biggest debt.
Spanish Yields
Yields on Spanish 10-year bonds rose above 6 percent today for the first time since Aug. 5. The European Central Bank was said to resume its purchases of government debt, including buying Spanish and Italian securities, on Aug. 8.
The ECB Council member Jens Weidmann, who's also head of Germany's Bundesbank, said euro-area governments should take responsibility for solving the sovereign-debt crisis and not rely on policy makers to counter the region's turmoil.
"The co-option of monetary policy for fiscal needs must come to an end," Weidmann said in a speech at a conference in Frankfurt today. "The pressure on the ECB as the only reputed institution that can act has increased with every failure by governments to solve the crisis," which "lessens the imperative" on leaders to "implement the necessary measures."
Italy's President Giorgio Napolitano offered the position of premier to former European Union Competition Commissioner Mario Monti after the resignation of Silvio Berlusconi. Greek Prime Minister George Papandreou resigned last week to make way for a coalition led by former European Central Bank Vice President Lucas Papademos.
Weaker Euro
The euro has declined 1.1 percent over the past six months, according to Bloomberg Correlation-Weighted Indexes, which track the currencies of 10 developed markets.
Europe's currency also fell today after Spiegel magazine reported that German lawmakers are preparing for Greece's departure from the currency in case the new government doesn't commit to carry forward reforms that have already been agreed.
The franc snapped a two-day gain versus the dollar, sliding 0.6 percent to 90.53 centimes versus the dollar, after the Federal Statistics Office said producer and import prices decreased 1.8 percent last month from a year earlier.
Swiss National Bank President Philipp Hildebrand is proving intervention in foreign-exchange markets can succeed as speculators bow to his decision to cap the franc against the euro as he seeks to stave off the threat of deflation. The currency has depreciated 10 percent against the euro and 12 percent versus the dollar since Sept. 5, the day before the central bank imposed a ceiling at 1.20 per euro.
Sterling fell 0.8 percent to $1.5932 after the Chartered Institute of Personnel and Development said its gauge of U.K. hiring fell to minus 3 in the fourth quarter from minus 1 in the previous three months. Claims for jobless benefits rose for an eighth month in October, according to a Bloomberg survey of economists before a Nov. 16 report.
