Euro Falls on Concern Greek Talks Will Stall; Yen Approaches Postwar High
Feb. 2 (Bloomberg) -- Daniele Antonucci, senior European economist at Morgan Stanley, talks about the role of the European Central Bank in helping cut Greece's debt burden, ECB interest rates and the potential benefits of a weaker euro on the region's economy. He speaks with Mark Barton on Bloomberg Television's "The Pulse." (Source: Bloomberg)
The euro weakened versus the yen and the dollar as Greece struggled to reach an agreement with its bondholders on cutting the nation’s debt burden, adding to concern Europe’s fiscal crisis will deepen.
The common currency fell against 14 of its 16 most-traded counterparts as Luxembourg Prime Minister Jean-Claude Juncker said steps to tackle the debt crisis adopted at a summit on Jan. 30 were “largely insufficient.” The yen rose to within 1 yen of a postwar high against the dollar, prompting speculation Japan will intervene to limit the currency’s gains. The dollar remained higher as claims for jobless benefits fell last week.
“The fact that it’s dragged on, people are taking that as meaning that there could be more problems than they initially thought,” David Mann, regional head of research for the Americas in New York at Standard Chartered Plc, said in reference to the Greek talks. “The first quarter is when people think that the crisis in Europe is going to be at the worst point, so the yen still has its safe-haven status.”
The euro weakened 0.5 percent to 99.81 yen at 9:10 a.m. in New York having dropped 1.8 percent over the past five trading days. The common currency fell 0.4 percent to $1.3114. The yen rose as high as 76.05 per dollar, approaching the postwar record of 75.35 set on Oct. 31, before trading up 0.1 percent at 76.10.
Greece and its creditors are locked in talks over a debt- swap deal for the nation. Bondholders last week lowered their demands for an average coupon on the new debt they would get after European officials demanded they take steeper losses. The European Central Bank is likely to refuse to show its hand on how it will help cut Greece’s debt burden until the deal is reached, said economists from ING Group to Deutsche Bank AG.
‘Ultra Difficult’
“We are skewed to the point where Europe would react more to negative news at this stage if it were to get any, and could drift on no news,” said Kit Juckes, head of foreign-exchange research at Societe Generale SA in London.
European Union leaders will need to take further steps when they convene again in early March, Juncker, who leads the group of euro-area finance ministers, said in a speech in Luxembourg today. He said he seeks better coordination of economic policy across the bloc and that Greek bond-swap talks with private creditors are “ultra difficult.”
The euro also declined as Spanish bonds fell after a debt sale. Spain auctioned 4.56 billion euros of debt due in 2015, 2016 and 2017, just surpassing its target of 4.5 billion euros ($6 billion). That compares with a 6.61 billion-euro sale on Jan. 19, which was well above the target of 4.5 billion euros. The Spanish 10-year yield climbed 11 basis points to 4.90 percent.
China’s Wen
The euro briefly erased losses after China’s Premier Wen Jiabao said his nation supports European efforts to stabilize the 17-nation currency. China is still researching the best way to participate in the European Financial Stability Facility, Wen said at a briefing with German Chancellor Angela Merkel in Beijing.
Japanese Finance Minister Jun Azumi said he “can’t overlook” speculative moves in the foreign-exchange market and is ready take “decisive” actions if necessary. The Japanese ministry sold the yen on Oct. 31 on concern its advance to a record will hurt earnings at exporters.
Sharp Corp., Japan’s largest maker of LCD panels, yesterday forecast its worst annual loss since its founding a century ago, with its president saying exporting is “nearly impossible” with the strong yen.
‘Intervene Again’
“If the dollar-yen falls quickly then the Ministry of Finance might decide to intervene again,” said You-Na Park, a foreign-exchange strategist at Commerzbank AG in Frankfurt. “Until then we will hear continued verbal intervention since the yen is quite strong.”
The yen has gained 6.1 percent over the past six months, the second-best performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar rose 6.2 percent, and the euro dropped 2.4 percent.
Applications for unemployment insurance payments in the U.S. dropped by 12,000 to 367,000 in the week ended Jan. 28, Labor Department figures showed today in Washington. The median forecast of 46 economists in a Bloomberg News survey projected 371,000.
Companies are slowing the pace of firing as the world’s largest economy picks up, a necessary step toward bigger gains in employment. Economists forecast a Labor Department report tomorrow may show employers boosted payrolls in January and the jobless rate held at an almost three-year low.
‘On the Defensive’
The dollar may weaken a further 1.5 percent against the yen after breaching a key trading level, Karen Jones, head of fixed- income, commodity and currency technical analysis at Commerzbank AG in London AG, said, citing trading patterns.
“Dollar-yen has eroded the key Fibonacci retracement at 76.20,” she wrote in an e-mailed report. “This leaves the market on the defensive and refocuses attention back to the 75.31 low and potentially psychological support at 75.”
The franc weakened against all except one of its 16 major counterparts amid talk of possible intervention by the Swiss National Bank.
“The chatter is increasing whether the SNB will intervene before 1.20” per euro, said Elizabeth Gregory, a market strategist at Swissquote Bank SA in Geneva. “There’s still a lot of discussion about how the SNB defends the exchange-rate floor.”
The franc was little changed at 1.20454 per euro and dropped 0.4 percent to 91.89 centimes per dollar.
To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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