The euro fell by the most in more than two weeks against the dollar amid concern the region’s debt crisis will hamper efforts by governments and banks to raise funds this year.
The common currency weakened versus all but two of its 16 major peers before France auctions 8.5 billion euros ($11.3 billion) of debt today. The Swiss franc pared its gain against the euro after a gauge of manufacturing unexpectedly fell last month. The pound declined against the dollar and the euro. Taiwan’s dollar approached a 13-year high before a report this week that economists predict will show inflation accelerated.
“There will be some downward bias for the euro during this week and even more next week,” said Roberto Mialich, a senior currency strategist at UniCredit SpA in Milan. “We will be very surprised if the euro manages to hold the gains we saw at the end of 2010. There is a heavy calendar of debt auctions in the coming weeks so this is a potential drag for the euro.”
The euro weakened 0.6 percent to $1.3311 as of 6:07 a.m. in New York, paring a decline of as much as 1 percent. It rose to $1.3425 on Dec. 31, the highest since Dec. 14, last week. The common currency fell 6.5 percent in 2010, its biggest decline since 2005, even as it appreciated 9.4 percent in the second half. The euro was little changed at 108.39 yen, after weakening to 107.80.
The dollar gained 0.4 percent to 81.44 yen, snapping a 10- day drop, the longest run of declines since October 2004. Canada’s currency rose for the ninth straight day against the greenback, appreciating 0.5 to 99.30 Canadian cents per U.S. dollar, after advancing to 99.15 cents, the strongest since May 2008. Financial markets in the U.K., Australia, New Zealand and Japan are closed today for public holidays.
Europe’s Debt Crisis
The euro tumbled in 2010 as the European debt crisis prompted concern the currency union might fracture. The trading bloc added Estonia as its 17th member nation on Jan. 1. France will sell 84-day, 161-day and 343-day bills today.
“The euro is the one currency we see falling against the dollar in the first quarter,” said Robert Ryan, a currency strategist at BNP Paribas SA in Singapore. “It’s the inability of the European institutions to get ahead of the curve. The real efforts to address the crisis have only come on the eve of utter collapse.”
The likelihood the euro area will exist in its current structure in a decade is 20 percent as governments fail to take sufficient measures to tackle economic imbalances, the Centre for Economics and Business Research in London said last week.
The euro region will have another debt crisis by this spring, when Spain and Italy have to refinance more than 400 billion euros of bonds, CEBR Chief Executive Officer Douglas McWilliams said in an e-mailed note on Dec. 31.
“The euro might break up at this point, though European politicians are normally able to respond to a crisis,” he said. “If the euro doesn’t break up, this could be the year when it weakens substantially toward parity with the dollar.”
The median prediction of 37 analysts surveyed by Bloomberg News is for the euro to decline to $1.30 by the end of March.
Europe’s manufacturing industry grew more than initially estimated in December, powered by Germany’s export-led expansion, according to data published today. A gauge of manufacturing in the euro area rose to 57.1 from 55.3 the previous month, a higher figure than earlier reported, London- based Markit Economics said. A reading of more than 50 indicates expansion.
The Dollar Index, which tracks the U.S. currency against those of six trading partners, rose 0.4 percent. Manufacturing in the U.S. probably grew in December at the fastest pace in seven months, reinforcing signs the expansion gained momentum at the end of 2010, economists said before the report.
The Institute for Supply Management’s factory index rose to 57 from 56.6 the prior month, according to the median estimate of 57 economists surveyed by Bloomberg News. A separate report may show construction spending increased 0.2 percent in November.
Taiwan’s dollar gained 0.6 percent to close at NT$30.2 against its U.S. counterpart, according to Taipei Forex Inc. The local dollar was trading 4.4 percent stronger at NT$29.085 a minute before the close. It touched NT$29.080 on Dec. 30, the strongest level since October 1997. Consumer prices climbed 1.7 percent in December, the most in 10 months, according to the median estimate of seven economists in a Bloomberg survey before government data due on Jan. 5.
The franc strengthened 0.4 percent to 1.2457, down from as much as a 0.7 percent gain.
The Purchasing Managers’ Index fell to 59.6 from 61.8 in November when adjusted for seasonal swings, Zurich-based Credit Suisse Group AG said in an e-mailed statement today. Economists forecast a gain to 62, the median of seven estimates in a Bloomberg News survey shows.
Sterling declined 0.9 percent to $1.5476 and weakened 0.4 percent to 86.07 pence per euro.
The pound’s share of global foreign-exchange reserves fell to 4 percent in the third quarter from 4.2 percent, International Monetary Fund quarterly data last week showed.
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