BLBG:Euro Falls Before Spanish Sale Amid Debt Crisis Concern
The euro fell as Spain prepared to auction bonds today amid signs Europe’s debt crisis is blunting economic growth in the region.
The 17-nation currency snapped a two-day gain against the dollar and yen before a preliminary report today that may show European services and manufacturing contracted this month at the fastest pace in three years. Demand for the dollar was limited after the Federal Reserve said it stands ready to implement further stimulus after announcing an extension of its program to replace short-term bonds with longer-term debt.
“As long as Spain’s debt problem stays with us, my bearish view on the euro won’t change,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp. (8711), a currency-margin company. “Whether Spain can resolve its debt problem has yet to become clear, so anxieties continue to prevail.”
The euro slid 0.2 percent to $1.2683 at 6:50 a.m. in London from yesterday, when it capped a two-day advance of 1 percent. It was little changed at 101.05 yen, after gaining 1.6 percent over the previous two days. The U.S. currency added 0.2 percent to 79.69 yen.
Spain is scheduled to auction notes today maturing 2014, 2015 and 2017. Earlier this week, in its first debt sale since becoming the fourth euro member to seek a bailout, Spain auctioned 12-month bills at an average yield of 5.074 percent, a record high in Bloomberg data going back to 2004.
Spanish Yield
Spanish 10-year yields yesterday declined for a second day to 6.74 percent. The rates on June 18 reached 7.29 percent, the most in the euro era and above the 7 percent level that pushed Greece, Ireland and Portugal to seek rescue packages.
European finance ministers are set to meet in Luxembourg today to discuss the currency union’s financial woes. Meanwhile, economic data may show the crisis is weighing on company output and household sentiment.
London-based Markit Economics is due to release advance data based on surveys of purchasing managers in the services and manufacturing industries. Its composite index for the euro area probably dropped to 45.5 in June from 46 in May, according to the median of economist forecasts collected by Bloomberg News. A reading at that level would be the fifth in a row below the 50 level that separates contraction from expansion and would be the lowest since June 2009.
An index of household sentiment in the common currency region declined to minus 20 in June from negative 19.3 in May, economists said before the European Commission in Brussels releases its initial estimate today.
ECB Pressure
“Flash euro-zone PMI releases today will likely restrain the euro,” Mitul Kotecha, head of global currency strategy in Hong Kong at Credit Agricole Corporate & Investment Bank, wrote in a research note today. “The data will put further pressure on the European Central Bank to cut interest rates.”
The ECB earlier this month held its benchmark interest rate at a record low of 1 percent, while President Mario Draghi said “a few” policy makers called for a cut. The central bank’s next rates decision is scheduled for July 5.
The euro is down from this year’s high of $1.3487 on Feb. 24 and has depreciated about 6.7 percent in the past 12 months, according to Bloomberg Correlation-Weighted Indexes that measure 10 developed-market currencies.
The Fed said yesterday it will expand its so-called Operation Twist program, which seeks to lower borrowing costs by extending the average maturity of the securities in the central bank’s portfolio, by $267 billion through the end of the year. Central bank officials also cut their estimates for 2012 growth after last month’s slowdown in hiring and see little progress on unemployment during the rest of the year.
‘Additional Steps’
“If we don’t see continued improvement in the labor market, we’ll be prepared to take additional steps if appropriate,” Fed Chairman Ben S. Bernanke said at a news conference in Washington yesterday following a two-day meeting of the Federal Open Market Committee. “Additional asset purchases would be among the things that we would certainly consider.”
The Fed Bank of Philadelphia’s general economic index was at zero this month, according to the median economist estimate in a Bloomberg survey before data due today. The reading was minus 5.8 in May, the lowest since September and signaling contraction.
“The slowdown in the U.S. economy is more than I have expected, and it’s damping people’s willingness to buy the dollar,” said FX Prime’s Ueda.
N.Z. Economy
New Zealand’s dollar rose initially after a report showed the nation’s economy grew at the fastest pace in five years last quarter. Gross domestic product rose 1.1 percent in the three months ended March 31 from the previous quarter, when it expanded a revised 0.4 percent, Statistics New Zealand said.
The so-called kiwi climbed as much as 0.7 percent to 80.17 U.S. cents, the highest level since May 4. It pared gains after preliminary data showed China’s manufacturing may shrink for an eighth month in June.
The 48.1 advance reading for a purchasing managers’ index for China released by HSBC Holdings Plc and Markit Economics today compares with a final 48.4 for May. A reading above 50 indicates expansion. China is New Zealand’s second-largest export destination.
The kiwi fetched 79.74 U.S. cents from 79.62 yesterday.
To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
