BLBG:Euro Snaps Gain Before Italy Debt Sale, Industrial Output
The euro snapped an advance from yesterday before auctions of Italian government debt this week and data today forecast to show Europe’s industrial production dropped the most in seven months.
The 17-nation currency maintained a two-day slide versus the U.K. pound before Greece holds general elections on June 17 amid concern Europe’s fiscal crisis is spreading. The dollar strengthened against the majority of its 16 peers after Spain’s borrowing costs jumped to a 15-year high and Fitch Ratings predicted Prime Minister Mariano Rajoy will miss budget-deficit targets, boosting demand for safer assets.
“There are still sources of concern, including Spain and Italy,” said Junichi Ishikawa, an analyst at a Tokyo-based unit of IG Group Holdings Plc (IGG), a London-based company that lets clients take positions on markets without buying or selling actual securities, currencies or futures. “The downside risks to the euro remain large.”
The euro fell 0.1 percent to $1.2493 at 1:45 p.m. in Tokyo from the close in New York yesterday when it rose 0.2 percent. It was little changed at 80.33 U.K. pence after having lost 0.7 percent in the prior two days. The dollar added 0.1 percent to 79.63 yen. The yen slid 0.1 percent to 99.49 per euro.
Italy is scheduled to sell 6.5 billion euros ($8.1 billion) of 364-day bills today and offer debt maturing in 2015, 2019 and 2020 tomorrow. The yield on the nation’s benchmark 10-year government bond rose to as high as 6.3 percent yesterday, a level unseen since Jan. 25.
Spanish Deficit
Spain’s 10-year yield climbed for a third day to touch 6.83 percent, the highest since 1997, after the nation on June 9 became the fourth euro state to ask for an international bailout, following Greece, Ireland and Portugal. This weekend’s election in Greece may determine whether it abides by spending reductions imposed upon it to receive two rescue packages and remain in the euro.
“Spain will miss its budget-deficit targets again this year and next by a substantial margin,” Fitch’s Managing Director Ed Parker said at an event in Oslo yesterday. Andrew Colquhoun, the head of Asia Pacific sovereign ratings at Fitch, said in Singapore today that if Greece exits the currency bloc and there is material contagion to periphery nations, all 17 euro members would likely face downgrades.
The European Union’s statistics office will probably say industrial production in the euro area fell 1.2 percent month- on-month in April, the most since September, according to the median estimate of economists in a Bloomberg News survey.
“The macroeconomic picture is terrible and I can’t see light at the end of the tunnel for growth” in the euro area, said Jesper Bargmann, regional head of spot trading for major currencies in Singapore at Royal Bank of Scotland Group Plc. “The U.S. dollar is my preferred safe haven.”
Euro Chart
The euro’s decline in late May against the yen shows that the euro has completed a “head-and-shoulders” pattern and it may drop to 88.51 yen, lower than the record set in October 2000, according to Daisuke Uno, chief strategist in Tokyo at Sumitomo Mitsui Banking Corp.
A head-and-shoulders pattern occurs when prices form three consecutive peaks on a chart, with the middle being the highest. A downturn’s start is signaled when prices fall below a neckline serving as the pattern’s base.
N.Z. Dollar
The euro has weakened 3.7 percent in the past six months, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. New Zealand’s dollar was the biggest winner with a 3.9 percent climb.
The Reserve Bank of New Zealand will probably leave the official cash rate unchanged at a record low of 2.5 percent tomorrow, according to all 16 economists surveyed by Bloomberg.
“The approaching RBNZ Monetary Policy Statement and Official Cash Rate review should see further interest in the New Zealand dollar,” Carrick Lucas, a strategist at ANZ National Bank Ltd., and Alex Sinton, director of foreign exchange, wrote in a research note today. With sovereign risk on the rise in Europe, “the silver lining could be that N.Z. bonds and other highly rated sovereign markets further benefit from investor reallocation.”
The so-called kiwi reached 77.89 U.S. cents, the highest since May 15, before trading at 77.67 from 77.72 yesterday.
To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
