BLBG:Euro Falls As Merkel Says European Project At Risk; Pound Drops
The euro weakened after German Chancellor Angela Merkel said the “European project” is at risk unless policy makers work harder, fueling concern a solution to the region’s debt crisis remains elusive.
The pound fell against the dollar for the first time in four days after the Bank of England said it may be appropriate to cut interest rates. The yen and the dollar rose against most of their 16 major peers before Federal Reserve Chairman Ben S. Bernanke gives a second day of testimony to lawmakers and Asian stocks and U.S. index futures fell. Sweden’s krona rose to a more than 11-year high versus the euro.
Merkel’s comment “is quite a remarkable statement,” said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp. in London. “That has pulled the rug from underneath the euro. It’s a reminder that you can never take your eye from the euro crisis. Medium term, we are still targeting below $1.20.”
The euro dropped 0.4 percent to $1.2242 at 7:55 a.m. New York time, and slid 0.5 percent to 96.69 yen. The greenback was little changed versus the Japanese currency at 78.98.
“We haven’t yet shaped the European project in a way that we can be sure that everything will work, will turn out well,” Merkel said in an interview with her Christian Democratic Union party’s website posted today. “That means we have to keep working. Still, I’m optimistic that we will succeed.”
German Auction
An auction of German two-year notes today drew a negative yield for the first time as investors sought the safety of Europe’s benchmark government debt as a haven from the financial turmoil in the 17-nation currency bloc.
The MSCI Asia Pacific Index of stocks dropped 0.5 percent, and futures on the Standard & Poor’s 500 Index slid 0.3 percent.
The Dollar Index (DXY), which tracks the U.S. currency against those of six trading partners, climbed 0.2 percent to 83.221, snapping a three-day slide.
U.S. central bank policy makers “are looking for ways to address the weakness in the economy should more action be needed to promote a sustained recovery in the labor market,” Bernanke said in response to questions during yesterday’s testimony in Washington. The Federal Open Market Committee is scheduled to start a two-day policy meeting on July 31.
Bernanke resumes his semi-annual testimony, appearing before the House Financial Services Committee at 10 a.m. today in Washington.
The dollar fell through its 200-day moving average of 79.06 yen. It may now find support at its June 15 low of 78.61 yen, according to data compiled by Bloomberg.
U.K. Rate
The Bank of England’s nine-member Monetary Policy Committee was unanimous in a decision to keep its benchmark interest rate at a record low 0.5 percent this month, minutes of the July 4-5 meeting released today showed. While it said cutting the rate had “drawbacks” compared with more asset purchases and the arguments for and against such a move were the same as in June, this assessment could change in light of new credit measures.
“Expectations for a rate cut were not on the cards,” Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London, said in e-mailed comments.
Sterling fell 0.3 percent to $1.5610, even as it strengthened 0.1 percent to 78.44 pence per euro.
The Swedish krona advanced to the strongest since December 2000 against the euro, appreciating as much as 0.9 percent to 8.4781 per euro. It was 0.4 percent higher at 6.9365 versus the dollar.
Malaysia’s ringgit headed for its longest winning streak since April and China’s yuan advanced for a third day. South Korea’s won gained after North Korea announced Kim Jong Un’s appointment to the nation’s top military post.
The ringgit strengthened 0.2 percent to 3.1575 per dollar, according to data compiled by Bloomberg. The won gained 0.1 percent to 1,142.55 after rising as much as 0.5 percent. The yuan climbed 0.04 percent to 6.3702 against the U.S. currency.
To contact the reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; Roxana Zega in London at rzega@bloomberg.net
To contact the editors responsible for this story: Daniel Tilles at dtilles@bloomberg.net.
