Euro Falls for Second Day on Concern Europe's Recovery Slowing; Yen Drops
Euro Falls for Second Day
Hannelore Foerster/Bloomberg
The euro dropped against 15 of its 16 major counterparts.
The euro dropped against 15 of its 16 major counterparts. Photographer: Hannelore Foerster/Bloomberg
The euro dropped for a second day against the dollar as signs that Europe’s economic recovery is waning damped demand for the single currency.
The euro fell versus 13 of its 16 major counterparts as concern austerity measures will hurt the economy helped send the yield difference between German and Greek 10-year government debt close to the widest since May. The yen slid against the dollar on speculation Japan will weaken the currency and after data showed domestic investors bought a record amount of foreign debt last week. The pound advanced after the U.K. posted a narrower budget deficit than economists predicted.
“Euro concerns are still lingering in the background,” said Antje Praefcke, a currency strategist at Commerzbank AG in Frankfurt. “The impact of the fiscal adjustment in Europe is real and will be felt for years,.”
The euro fell to $1.2817 as of 10 a.m. in London from $1.2853 yesterday in New York. It reached $1.2734 on Aug. 16, the weakest level since July 21. The yen slid to 85.63 per dollar from 85.46. The euro traded at 109.73 yen from 109.84 yen. Sterling rose 0.5 percent to 81.99 pence per euro.
The yield premium investors demand to hold Greek 10-year bonds rather than benchmark bunds was at 825 basis points, or 8.25 percentage points, after rising to 837 points on Aug. 16, the widest since May 7, according to Bloomberg generic prices.
Austerity measures in Greece are dragging down the economy and have driven the unemployment rate to as high as 70 percent in some areas, Germany’s Der Spiegel magazine reported on its website. The International Monetary Fund projects Greek joblessness at 12 percent this year and 13 percent in 2011.
The common currency pared declines as the Stoxx Europe 600 Index rose 0.1 percent, reducing demand for the dollar as a safe haven.
‘Struggle’
“The euro continues to struggle to make upside progress as periphery woes linger,” Paul Robson, a senior foreign-exchange strategist at Royal Bank of Scotland Group Plc in London, wrote in a note. “This leaves Monday’s $1.2734 low as an obvious focus.”
The pound also rose against the euro after reports showed U.K. retail sales jumped by almost four times as much as economists forecast in the biggest increase for five months. Sales rose 1.1 percent from June, the Office for National Statistics said today in London. Economists predicted a 0.3 percent increase, according to a Bloomberg News survey.
Net Borrowing
Net borrowing was 3.17 billion pounds ($5 billion) in July, compared with 5.52 billion pounds a year earlier, the Office for National Statistics said in London today. The median of 14 forecasts in a Bloomberg News survey was for a deficit of 4.8 billion pounds.
The yen weakened after Ministry of Finance data showed Japanese investors scooped up a net 2.17 trillion yen ($25.5 billion) in foreign bonds and notes, the most since the data began in 2001.
The currency also lost ground on speculation authorities will act to temper further gains after the yen reached a 15-year high versus the dollar this month.
The Bank of Japan may increase the amount of a corporate loan program to 30 trillion yen ($351 billion) from 20 trillion yen, the Sankei newspaper reported, without saying where it obtained the information. The BOJ may also extend the duration of the loan to six months from three months, Sankei said.
“Wariness that the Japanese government may invoke some policies are stoked each time the yen comes closer to the 85 level,” said Shinichi Hayashi, a dealer in Tokyo at Shinkin Central Bank, the central institution for Japan’s financial cooperatives. “This policy outlook may slow down the pace of appreciation.”
‘Intervention is Necessary’
Japan’s Finance Minister Yoshihiko Noda said today he will continue to monitor financial markets closely. A ruling-party lawmaker yesterday urged Prime Minister Naoto Kan to immediately take steps to weaken the yen to 95 per dollar as the currency’s rally hurts the export-led economy.
“Intervention is necessary to show that the government cannot accept the current level,” Yoichi Kaneko, a Democratic Party of Japan upper-house lawmaker, said in an interview. Central banks intervene in the foreign-exchange market when they buy or sell currencies to influence exchange rates.
Malaysia’s ringgit rose to a 13-year high after the central bank said yesterday local companies can use the currency to settle cross-border transactions with immediate effect. Exporters may also hedge their foreign-exchange risks beyond a previous 12-month threshold, Bank Negara Malaysia said in a statement.
“Given that Malaysia is running a large trade surplus, the new regulations will allow exporters to sell their dollar proceeds in the forwards market at a faster pace and possibly in a bigger volume,” said Dariusz Kowalczyk, a currency strategist in Hong Kong at Credit Agricole. “This in turn will put appreciation pressure on the ringgit.”
The ringgit strengthened to 3.1350 per dollar from 3.1558 yesterday.
To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net
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