BLBG:Euro Falls Second Day as Portugal Ministers Resign; Yen Gains
The euro weakened for a second day against the dollar as a slump in Portuguese bonds after the resignation of two ministers from the nation’s government reignited speculation Europe’s debt crisis is worsening.
The 17-nation currency dropped the most in two weeks versus the yen as borrowing costs also increased in Spain and Italy. The yen strengthened against all of its 16 major counterparts as declines in stocks boosted demand for Japan’s currency as a haven. Australia’s dollar fell to the weakest level since September 2010 after Reserve Bank Governor Glenn Stevens said the economy “will probably get” a lower currency if needed.
“The euro is being driven by the headlines coming out of Portugal,” said Paul Robson, a senior currency strategist at Royal Bank of Scotland Group Plc in London. “In the past markets have penalized currencies where you’ve got political concerns and a weak political backdrop. There’s been a lot of complacency about the euro-area periphery in general during the liquidity drench which seen people hunting for yield.”
The euro fell 0.3 percent to $1.2954 at 10:27 a.m. London time after sliding 0.7 percent yesterday. The shared currency dropped 1.1 percent to 129.22 yen, the biggest decline since June 14. The yen strengthened 0.9 percent to 99.77 per dollar.
The slump in Portugal’s bonds pushed 10-year yields above 8 percent for the first time since November. Prime Minister Pedro Passos Coelho told voters in a televised speech from Lisbon yesterday he’s trying to hold his government together.
Second Resignation
Portuguese Foreign Affairs Minister Paulo Portas, leader of junior coalition party CDS, quit yesterday in protest at the government’s budget policy. Portas was the second minister to resign this week after finance chief Vitor Gaspar stepped down, saying his credibility had been compromised by the government’s failure to meet budget targets set by the European Union.
The euro fell for the first time in five days against the yen after a report showed services industries in the region shrank at a faster pace in June than initially estimated.
An index of services activity based on a survey of purchasing managers was 48.3 last month, Markit Economics said. That’s less than an initial estimate of 48.6 on June 20 and below the level of 50 that divides expansion from contraction.
The euro has gained 4.6 percent this year, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The dollar gained 6.7 percent, the best performer, and the yen tumbled 8.6 percent.
Aussie Drops
The Australian dollar weakened against all except two of its 16 major counterparts after Stevens said the currency had been too high.
“If the economy needs a lower exchange rate, it will probably get it,” Stevens said in a speech in Brisbane to the Economic Society of Australia. He said the central bank’s board “deliberated for a very long time” yesterday before deciding to keep its key interest rate at a record low 2.75 percent.
The Australian dollar fell 0.8 percent to 90.78 U.S. cents after sliding to 90.53 cents, the lowest since Sept. 3, 2010.
“The Aussie is falling across the board in reaction to comments from the RBA Governor,” said Junichi Ishikawa, an analyst at IG Markets Securities Ltd. in Tokyo. “The Aussie dollar will probably continue its weakening trend.”
To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
