Euro Falls as ECB's Stark Adds to European Financial Concerns
Euro Falls as ECB’s Stark Adds to European Financial Concern
Hannelore Foerster/Bloomberg
The euro weakened after FT Deutschland reported ECB Executive Board member Juergen Stark as saying some German banks need more capital.
The euro weakened after FT Deutschland reported ECB Executive Board member Juergen Stark as saying some German banks need more capital. Photographer: Hannelore Foerster/Bloomberg
Sept. 9 (Bloomberg) -- Christoph Rieger, a fixed-income strategist at Commerzbank AG, comments on the outlook for peripheral euro-area bonds and German bank funding. He talks with Francine Lacqua on Bloomberg Television's "On The Move." (Source: Bloomberg)
The euro fell against the yen on speculation European banks will struggle to raise funds amid signs the recovery in the region is faltering.
Europe’s currency weakened versus 11 of its 16 major counterparts after FT Deutschland reported European Central Bank Executive Board member Juergen Stark as saying some German banks need more capital. The yen rose against 12 of its 16 most-traded peers after the Organization for Economic Cooperation and Development said the global recovery is slower than projected. Australia’s dollar rose to a four-month high against the greenback after a report showed the South Pacific nation added more jobs in August than economists forecast.
“The theme of sovereign risk has returned, even though it never went away from a fundamental perspective,” said Simon Smith, chief economist at FXPro Financial Services Ltd. in London. “The currency markets are back to worrying about what was troubling them in July, and that’s negative for the euro.”
The euro slipped 0.2 percent to 106.48 yen as of 7:09 a.m. in New York. It reached 105.80 yen yesterday, the least since Aug. 24. The 16-nation currency was little changed at $1.2717. The dollar dropped 0.2 percent to 83.73 yen. Australia’s dollar rose 0.8 percent to 92.51 U.S. cents after climbing to 92.61 cents, the highest level since May 4.
The pound fell against all of its 16 most-active peers as U.K. Deputy Prime Minister Nick Clegg said the nation’s recovery will probably be “uneven” and Bank of England policy makers kept interest rates at a record low 0.5 percent.
Bank Concern
The central bank also maintained its emergency bond- purchase plan to support a recovery that’s showing signs of stalling. Both the bond purchases and the decision to keep rates on hold were anticipated by all economists Bloomberg surveyed.
Sterling fell 0.4 percent to $1.5408 and also weakened 0.4 percent against the euro, to 82.56 pence.
Stark told members of Chancellor Angela Merkel’s Christian Democrat party that German savings banks, which weren’t subject to European Union stress tests, and state-owned Landesbanks are particularly at risk, FTD reported. The Association of German Banks said this week the nation’s 10 biggest lenders may need about 105 billion euros in fresh capital.
Concern the recovery in Europe’s largest economy may be slowing helped send Germany’s bund yield to a record low last month. Reports this week showed German industrial production rose less than forecast in July and exports unexpectedly fell.
Yen Strength
The yen approached a 15-year high versus the U.S. currency as signs of slowing growth in the U.S. damped demand for dollar- denominated securities amid prospects for lower yields.
The U.S. economy maintained its expansion while showing “widespread signs of a deceleration” in mid-July through the end of August, according to a survey by 12 regional Federal Reserve banks released yesterday.
“The market is still nervous about prospects for growth in the U.S. and even Europe,” said Jim Vrondas, a manager at the online foreign-exchange dealer OzForex Ltd. in Sydney. “The yen looks like it will continue to strengthen.”
Recent data suggest the economy of the Group of Seven nations could grow at an annualized rate of about 1.5 percent in the second half, below the 1.7 percent previously envisaged and the 3 percent rate of the first six months of the year, the Paris-based OECD said today.
“Recent high-frequency indicators point to a slowdown in the pace of recovery of the world economy that is somewhat more pronounced than previously expected,” Pier Carlo Padoan, the OECD’s chief economist, said in the report.
Aussie Climbs
Gains in the yen were limited after Japanese Finance Minister Yoshihiko Noda said the government is examining the effectiveness of intervention and is ready to take bold action on currencies when needed.
“Physical intervention is probably something that will stem the tide, but it’s not going to weaken the yen considerably,” Vrondas said.
Australia’s dollar rose against all of its most-active counterparts as the statistics bureau in Sydney said today that employers added 30,900 workers in August, which may increase pressure on the central bank to raise interest rates. The median estimate of economists surveyed by Bloomberg was for an increase of 25,000 jobs. The unemployment rate fell to 5.1 percent,
The strong employment number will put “real pressure on the Reserve Bank of Australia,” said Tony Allen, head of currency trading at ANZ National Bank Ltd. in Wellington. “The Aussie is running out of excuses not to move higher.”
Benchmark interest rates are 4.5 percent in Australia, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher- yielding assets.
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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