Euro Falls Second Day Versus Yen as Joint-Bond Plan Rejected; Franc Gains
Aug. 17 (Bloomberg) -- Patrick Perret-Green, head of Asian foreign-exchange and rates strategy at Citigroup Inc., discusses the outlook for the Swiss franc and the European debt crisis. He speaks from Singapore with Mark Barton on Bloomberg Television's "First Look." (Source: Bloomberg)
The euro weakened for a second day against the yen after the leaders of Germany and France rejected calls for joint bond issuance to stem the region’s debt crisis amid signs growth is slowing.
The 17-nation currency depreciated most against the Swiss franc, which appreciated against all of its major counterparts. Switzerland’s central bank stopped short of indicating whether it’s considering pegging the franc to the euro, though it said it will take further measures if needed to weaken the currency. The dollar fell against the yen before reports this week that are forecast to show U.S. price pressures are easing.
“The outcome of yesterday’s meeting was disappointing,” said Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in London. “Most people expected a move toward a framework that would include a common euro bond. There’s some reserve diversification out of the dollar, and that’s supporting the yen.”
The euro slipped 0.1 percent to 110.49 yen at 10:16 a.m. in London. It erased a decline of as much as 0.6 percent against the dollar, climbing 0.2 percent to $1.4433. The dollar slipped 0.3 percent to 76.54 yen.
The franc gained 1.2 percent to 1.13244 versus the euro. It strengthened 1.4 percent against the dollar to 78.47 centimes.
Merkel-Sarkozy Meeting
“Most of the move in the euro was linked to the Swiss National Bank announcement, which also disappointed the market, and that pulled euro-Swiss sharply lower,” Galy said.
German Chancellor Angela Merkel and French President Nicolas Sarkozy also rebuffed expanding the region’s 440- billion-euro ($632 billion) rescue fund. A plan to resubmit a proposal for a financial-transaction tax, which the European Union rejected in 2010, sent U.S. stocks lower yesterday.
The Swiss National Bank today said it aims to expand banks’ so-called sight deposits, cash available for immediate withdrawal, to 200 billion francs ($254 billion) from 120 billion francs. The SNB said it will also employ foreign- exchange swaps, will keep buying back outstanding SNB bills, and is ready to take more measures if needed.
“There were strong expectations, maybe too much of an expectation, from foreign-exchange market participants for the announcement of some kind of SNB intervention” or a peg to the euro, Steven Saywell, head of foreign-exchange strategy for Europe at BNP Paribas SA in London, said in an interview on Bloomberg Television’s “On The Move” with Owen Thomas.
Euro ‘Top End’
The euro weakened against most of its 16 major peers tracked by Bloomberg.
“European leaders haven’t addressed the underlying problem of deficits in the individual countries, and the exposure for banks and the crisis is set to bubble on,” said Derek Mumford, a Sydney-based director at Rochford Capital, a foreign-exchange and interest-rate risk-management firm. “Everything that’s going on in Europe would make it the sickest one at the moment. The euro is possibly at the top end of its range.”
Euro-region inflation slowed in July as Europe’s deepening debt crisis and a faltering global economy damped the growth outlook, data showed today.
The inflation rate in the 17-nation euro area fell to 2.5 percent, down from 2.7 percent in June, the European Union’s statistics office in Luxembourg said. That’s in line with an initial estimate published on July 29 and exceeded the European Central Bank’s 2 percent limit for an eighth month.
Inflation Data
A Credit Suisse AG index shows traders are betting that the ECB will cut its benchmark interest rate of 1.5 percent by 11 basis points. A report yesterday showed the euro-area economy grew 0.2 percent in the second quarter, its worst performance since emerging from the last recession in 2009.
The dollar slipped for a second day versus the yen before Labor Department data that economists said will show a 0.1 percent gain in the producer-price index for July, according to a Bloomberg News survey. The so-called core measure, which excludes volatile food and energy costs, probably increased 0.2 percent after a 0.3 percent advance in June.
A report tomorrow will probably show consumer prices excluding food and fuel costs climbed 0.2 percent, the smallest gain in three months, according to a separate survey.
“We have no sign of the U.S. coming out of this slow growth period,” said Kurt Magnus, executive director of currency sales at Nomura Holdings Inc. in Sydney. “That’s bearish for the U.S. dollar.”
Aussie, Kiwi
The dollar has slumped 6.5 percent so far this year, the worst performer among the 10 currencies tracked by Bloomberg Correlation-Weighted Indexes.
Australia’s and New Zealand’s currencies declined against the yen as concern the global economic recovery is losing momentum curbed demand for higher-yielding investments.
“There are all sorts of hurdles around in global markets,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “That will hurt risk appetite and that would hurt Aussie and kiwi in particular.”
New Zealand’s dollar declined to 63.91 yen from 64.21 yen in New York yesterday. It dropped 0.2 percent to 83.41 U.S. cents after earlier falling as low as 83.13 cents. Australia’s currency fell to 80.38 yen from 80.53 yen and bought $1.0489 from $1.0486.
To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
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