Euro Falls on Concern at Health of European Banks; Australian Dollar Drops
Sept. 7 (Bloomberg) -- Daniel Tenengauzer, head of emerging-market currency and rates strategy at Bank of America Merrill Lynch, talks about the prospects for the currency market. He talks with Deirdre Bolton on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
Sept. 6 (Bloomberg) -- Naomi Fink, a Japan strategist at Bank of Tokyo-Mitsubishi UFJ, talks about the outlook for Japan's economy including the yen and monetary policy. She speaks with Maryam Nemazee on Bloomberg Television's "Countdown." (Source: Bloomberg)
The euro slid the most in more than two weeks against the dollar as weaker German factory orders and concern that government-bond assets will hinder European banks’ fiscal health undermined the outlook for economic growth.
The 16-nation currency depreciated versus 14 of 16 major counterparts after the Wall Street Journal said European stress tests for banks understated some holdings of sovereign debt in the wake of Greece’s budget crisis. The yen strengthened for a second day as the Bank of Japan refrained from announcing a fresh increase to bank loans at its policy meeting. Australia’s dollar dropped as Prime Minister Julia Gillard won the backing of key independent lawmakers, keeping her party in power.
“Reports in the last 24 hours have renewed investor concerns about European banks, and that’s hurting the euro,” said Adam Cole, head of global currency strategy at Royal Bank of Canada Europe Ltd. in London.
The euro fell 1 percent to $1.2754 as of 6:51 a.m. in New York, the most since Aug. 20, and dropped 1.5 percent to 106.85 yen. The Japanese currency strengthened 0.4 percent against the dollar to 83.85 yen. The so-called Aussie dropped 0.9 percent to 90.93 U.S. cents, and 1.3 percent to 76.24 yen.
The European Union tested 91 lenders in July, giving 84 passing grades. Some banks excluded certain countries’ debt from their totals, while others reduced amounts to account for short positions they held, according to the report published on the Journal’s website yesterday, which cited the newspaper’s own analysis.
Factory Orders
Andrew Bosomworth, a fund manager at Pacific Investment Management Co., said yesterday that Greece still faces a “substantial” risk of debt default when its bailout program expires in three years. The yield premium investors demand to hold Greek and Irish debt instead of German bonds jumped today.
German lenders including Deutsche Bank AG need to raise about 105 billion euros ($134 billion) to reach an estimated 10 percent Tier 1 capital ratio, a key measure of financial strength, Dirk Jaeger, who is responsible for regulatory topics at the Association of German Banks, said yesterday.
The euro extended its decline after a report showed German factory orders unexpectedly fell in July. Adjusted for seasonal swings and inflation, orders declined 2.2 percent from June, when they surged a revised 3.6 percent, the Economy Ministry said today. That’s the biggest drop since February 2009. Economists forecast a 0.5 percent gain.
The yen gained versus all major currencies as the Bank of Japan kept the benchmark overnight rate at 0.1 percent. Governor Masaaki Shirakawa and his board left its bank-loan facility at 30 trillion yen ($357 billion) after boosting the liquidity injections at an Aug. 30 emergency meeting.
Australian Outlook
“The BOJ was never going to act so soon after an emergency meeting,” said Steven Barrow, head of group of 10 currency research at Standard Bank Plc in London. “The yen is going to drift higher from here.”
Australia’s dollar snapped a two-day gain versus the greenback after Gillard clinched a deal with two independent lawmakers, allowing her Labor Party to retain government and pursue a tax on mining companies.
The currency also weakened after the Reserve Bank of Australia said following a policy meeting that the global economic outlook remains “somewhat uncertain.”
“The RBA is clearly in no hurry before the next inflation rate, which comes in November, and that’s negative for the Australian dollar,” said Katie Dean, a senior economist at Australia & New Zealand Banking Group Ltd. in Melbourne.
South Korea’s won fell from its strongest level in four weeks after policy makers were suspected of buying dollars in the foreign-exchange market yesterday, said Ha Joon Woo, a currency dealer at Daegu Bank in Seoul.
The nation’s current-account surplus is forecast to narrow to about $1.5 billion in August, from a 16-month high of $5.9 billion in July, the finance ministry said today.
“All eyes will be trying to follow the authorities’ every move,” Ha said. “But we only see reasons for the won to continue to strengthen.”
The won dropped 0.5 percent to 1,176.70 per dollar, after rising to 1,169.20 yesterday, the strongest since Aug. 10.
To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net.
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