Euro Falls for Third Week as Credit Rating Downgrades Fuel Debt Concerns
Euro Falls for Third Week Versus Dollar
Chris Ratcliffe/Bloomberg
The euro fell for a third-straight week against the dollar as a slew of credit-rating downgrades fuelled concern some nations will be unable to pay their debts.
The euro fell for a third-straight week against the dollar as a slew of credit-rating downgrades fuelled concern some nations will be unable to pay their debts. Photographer: Chris Ratcliffe/Bloomberg
The euro fell for a third-straight week against the dollar as a slew of credit-rating downgrades fuelled concern some nations will be unable to pay their debts.
The common currency slipped against 14 of its 16 most actively traded peers in the week as the region’s leaders remained divided on how to tackle a crisis that has resulted in Greece and Ireland turning to the European Union and International Monetary Fund for bailouts. The Swiss franc appreciated to a euro-era record as investors sought a haven from the European debt crisis. The New Zealand dollar strengthened as Finance Minister Bill English said economic expansion will accelerate next year.
“The euro remains under pressure as the sovereign debt crisis story continues to circulate,” said Jeremy Stretch, executive director of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “Portugal was downgraded and French credit default swaps are at record highs, even though the triple-A rating’s been reaffirmed. The vultures continue to circle around.”
The euro dropped 0.5 percent to $1.3109 as of 1:33 p.m. yesterday in London. It touched $1.3055 on Dec. 23, the lowest level since the start of the month. The shared currency fell 1.8 percent to 108.73 yen, from 110.77.
Fitch Ratings this week cut Portugal’s credit rating one notch to A+ from AA- and said it may lower Greece’s to non- investment grade within six weeks. Fitch also moved non-euro area nation Hungary to BBB- from BBB and signaled it may further downgrade the country’s debt.
‘Wealth and Depth’
Moody’s Investors Service slashed Ireland’s credit rating by five levels to Baa1 on Dec. 17, the day after it placed Greece on review for a possible downgrade. It may also lower Portugal one or two levels after warning on Dec. 21 that budget cuts will worsen the country’s “sluggish” growth.
Standard & Poor’s yesterday affirmed France’s standing as one of the world’s safest borrowers. The euro-area’s second- largest economy deserves a AAA sovereign credit rating because of the “wealth and depth” of its economy and the view that President Nicolas Sarkozy’s government will consolidate its budget gap, S&P said. It put Belgium on negative watch last week.
Divisions among euro-area policy makers were highlighted as the European Central Bank said it has “serious concerns” that Irish draft legislation to fix the banking system threatens the ECB’s ability to run its liquidity operations. The bank commented in a position paper dated Dec. 17.
‘Deflation Risk’
The euro fell 10.5 percent against the currencies of 10 developed nations, according to Bloomberg Correlation-Weighted Currency Indexes. The yen gained 12.1 percent, the Swiss franc rose 7 percent, and the dollar dropped 1.3 percent.
The Swiss central bank said it’s ready to “take the measures necessary” to counter deflation threats after the euro-region’s fiscal crisis pushed up the franc to a record versus the euro for a sixth straight day on Dec. 22.
“Concerns about stability in the euro area have led to renewed financial market tensions,” pushing up the franc, the Zurich-based Swiss National Bank said in its quarterly report published on its website yesterday. “Should these tensions be exacerbated and put a strain on economic developments in the euro area, this would also have a detrimental effect on the Swiss economy. If a deflation risk emerges, the SNB would take the measures necessary to ensure price stability.”
Consumer Confidence
The franc strengthened 1.3 percent this week, to 1.2608 per euro and reached a record of 1.2439 on Dec. 22. It added 0.7 percent against the dollar to 0.9606.
The dollar slipped against 12 of its 16 most actively traded peers amid burgeoning confidence about the global economic recovery.
U.S. consumer confidence is expected to gain for a third month when data is released next week. The Conference Board’s sentiment index for U.S. consumers rose to 56.3, according to the median estimate in a Bloomberg survey before the New York- based group’s report due Dec. 28.
An S&P/Case-Shiller index of home values in 20 U.S. cities fell 0.2 percent in October from the same month in 2009, the first year-on-year decline since January, a report is predicted to show the same day. The gauge probably declined 0.7 percent from the prior month after adjusting for seasonal variations.
‘Warning Shot’
The Japanese currency gained the most this week in a month against the euro, jumping 1.8 percent to 108.77 yen. It climbed 1.3 percent to 82.9 yen per dollar.
Japan will likely increase its reserves set aside for intervening in the currency market by 5 trillion yen ($60 billion) in the next fiscal year, Reuters reported yesterday, citing unidentified people. The pool is currently 145 trillion yen, according to the report.
“Japan announcing this is just a warning shot to markets saying don’t bother next year pushing dollar-yen any lower,” said Geoffrey Yu, a London-based foreign exchange strategist at UBS AG.
New Zealand’s dollar rallied from a decade low against its Australian counterpart and rose versus the greenback on prospects recent drops were too rapid and the economy will rebound after an earthquake-spurred contraction.
The kiwi climbed against all of its 16 most-traded peers as Finance Minister English said economic growth in 2011 will be buoyed by the country hosting the Rugby World Cup finals and strong export prices.
New Zealand’s dollar ended the week little changed at NZ$1.3425 per Aussie. It depreciated to as much as NZ$1.3521 on Dec. 22, the weakest since September 2000. The currency climbed 1.6 percent to 74.83 U.S. cents and traded at 62.03 yen from 61.83 yen on Dec. 17.
To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net.
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.
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