BLBG: Euro Tumbles As Investors Sell To Buy Higher-Yield Assets
The euro fell against most of its major counterparts as investors sold the currency to buy higher- yielding assets.
The 17-nation currency reached a record low against the Australian dollar five days after the European Central Bank reduced its key interest rate to a record 0.75 percent. The euro approached a two-year low against the dollar even as European Union officials said they’ll jump-start emergency loans to shore up Spain’s banks.
“The euro is now the main funding currency, and everyone wants to be short euro,” said Sebastian Galy, a senior foreign- exchange strategist at Societe Generale SA in New York. “The dollar is no longer the main funding currency.” A short position is a bet currency will decline in value.
The euro weakened 0.2 percent to $1.2295 at 9:33 a.m. New York time. It touched $1.2251 yesterday, the lowest since July 2010. The 17-nation currency slid 0.4 percent to 97.60 yen and touched 97.32 yen, the weakest since June 5. The yen gained 0.23 percent to 79.38 per dollar.
Australia’s dollar climbed 0.5 percent to A$1.2009 per euro and touched $1.1997. The Aussie rose 0.3 percent to $1.0239 and was little changed against the yen at 81.27.
The pound fell against a majority of its major peers as Bank of England Governor Mervyn King said the U.K. economy doesn’t show “great signs” of recovering from recession. Sterling was little changed at $1.55339 to the dollar.
The euro has weakened 2.5 percent over the past month, the worst performer with the Swiss franc among the 10 developed- nation currencies tracked by Bloomberg Correlation-Weighted Indexes.
Spanish Banks
Spanish bonds gained, pushing yields below 7 percent, after euro-region finance chiefs meeting in Brussels agreed to make available 30 billion euros ($37 billion) by the end of this month to shore up Spain’s banks. The goal is to eventually use the region’s bailout fund to recapitalize banks directly instead of saddling the government with the debts.
European governments will hand over as much as 100 billion euros in emergency loans to Spain’s banks and may move the costs off the balance sheet of the government in Madrid to shield the euro region’s fourth-largest economy.
“There’s been a muted reaction to the agreement from the EU finance-minister summit to backstop the Spanish debt,” Carl Forcheski, a director on the corporate currency sales desk at Societe Generale SA in New York, said in a telephone interview. “It’s more of a buy-on-the-rumor, sell-on-the-news kind of effect.”
Production Drops
The Japanese currency rose versus the euro and dollar as Chinese trade growth slowed and industrial output shrank in France.
A report from the customs bureau showed China’s growth in overseas shipments slowed to 11.3 percent in June from a year earlier, after increasing 15.3 percent the prior month.
French industrial production fell 1.9 percent in May from the previous month, Insee, the Paris-based statistics office, said today. Economists had forecast a decline of 1 percent, according to the median estimate of 21 forecasts in a Bloomberg News survey. Production in the euro area stalled in May, economists forecast in another poll before the data is reported in two days.
To contact the reporters on this story: Joseph Ciolli in New York at jciolli@bloomberg.net; Allison Bennett in New York at abennett23@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
