Euro Falls Most in 11 Months Versus Yen on Debt Concern

The euro fell by the most in 11 months against the yen as rising Spanish borrowing costs boosted concern the region’s sovereign-debt crisis in worsening.

The dollar posted weekly gains against most of its major counterparts as demand for safety increased. Higher-yielding currencies, led by South Africa’s rand, fell as a report showed U.S. employers added the fewest jobs in five months in March, which fueled concern the U.S. economic recovery is slowing and underscored bets the Federal Reserve will introduce further stimulus. The yen rose against all of its major peers before a Bank of Japan meeting next week.

“The rain has come from Spain,” said Alan Ruskin, global head of Group-of-10 foreign-exchange strategy at Deutsche Bank AG in New York. “The austerity policy is so harsh that it could undermine their own capacity to deliver better fiscal numbers. The Spain story is front and center” for the euro.

The 17-nation euro dropped 3.4 percent to 106.86 yen in New York, its biggest weekly loss since May. The shared currency fell 1.9 percent to $1.3096, reaching $1.3035 April 5, its lowest level since March 15. The dollar weakened 1.5 percent to 81.64 yen.

The rand and Sweden’s krona declined the most against the dollar among the 16 major currencies tracked by Bloomberg. South Africa’s currency slumped 2.7 percent to 7.8834 per dollar while the krona lost 2.1 percent to 6.7522.

Franc Ceiling

The Swiss franc climbed to as strong as 1.19995 per euro April 5, breaking the Swiss National Bank-imposed ceiling of 1.20 per euro. The franc appreciated 0.3 percent this week, rising for a third week, to 1.2010 per euro. It lost 1.6 percent to 91.73 centimes per dollar.

The Swiss central bank set a limit of 1.20 francs per euro on Sept. 6 to protect exports after investors turned to the nation’s currency as a haven from Europe’s sovereign-debt crisis. The SNB won’t allow the franc to rise above the ceiling and is ready to buy foreign currencies in unlimited quantities, spokesman Walter Meier said by telephone April 5.

The euro declined 1.1 percent in the past week, the second worst performance after the krona among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen has gained 2.6 percent and the dollar has appreciated 0.9 percent.

Spain, the euro-region’s fourth-largest economy, is in “extreme difficulty,” Prime Minister Mariano Rajoy said April 4, raising the possibility of a bailout for the second time. Spanish bonds fell, pushing the yield on the 10-year benchmark bond to as high as 5.84 percent April 5, the most since December, and widening the spread with similar-maturity German bunds to more than 4 percentage points.

Spain’s Debt

Spain’s 10-year bond yield has jumped nearly one percentage point since March 2, when Rajoy announced the government would fail to achieve its budget-deficit target this year. He warned that public debt will surge to a record 79.8 percent of GDP this year as it imposes the deepest austerity in at least three decades.

German exports probably decreased 1.2 percent in February from January, when they rose 2.4 percent, according to the median estimate of economists surveyed by Bloomberg News before the report due on April 10. In France, industrial production increased 0.3 percent in February, matching a 0.3 percent gain the prior month, another poll showed before the nation’s statistics office releases data the same day.

The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six U.S. major trading partners, gained 1.1 percent to 79.839, halting three consecutive weeks of losses.

Jobs Gains

Nonfarm payrolls increased by 120,000 last month, the smallest increase in five months, the Labor Department reported yesterday. Economists had forecast an addition of 205,000, according to the median of 75 estimates in a Bloomberg News survey. The unemployment rate fell to 8.2 percent, the lowest since January 2009.

While the Federal Open Market Committee, led by Chairman Ben S. Bernanke, has pledged to keep its interest rate target at a record low of zero to 0.25 percent through 2014. It’s holding off on increasing monetary accommodations unless the U.S. economic expansion falters or prices rise at a rate slower than its 2 percent target, according to minutes of the central bank’s March 13 meeting released April 3.

“It’s not a green light for Mr. Bernanke to announce QE3 tomorrow, but it certainly says that the conditions under which some FOMC members will be pushing the case for further easing measures are falling into place,” said Ray Attrill, a senior currency strategist at BNP Paribas SA in New York, yesterday after the jobs report.

The Fed bought $2.3 trillion of securities in two rounds of quantitative easing from December 2008 to June 2011.

Canada’s Economy

Canada’s dollar rose against its U.S. counterpart after a report showed the nation added the most jobs since 2008 in March. Canada’s unemployment rate fell to 7.2 percent last month from 7.4 percent in February, Statistics Canada said April 5.

The loonie, as Canada’s currency is known, climbed 0.2 percent to 99.72 cents per U.S. dollar.

The yen strengthened even before a Bank of Japan meeting April 10 that may see policy makers adding stimulus.

Prime Minister Yoshihiko Noda’s nominee to the Bank of Japan board was rejected by the upper house of parliament in a victory for lawmakers pressing for more monetary easing to spur growth and end deflation.

The BOJ said in February it would expand its asset-purchase program to 30 trillion yen ($368 billion) from 20 trillion, with 19 trillion yen set aside for government bonds. The central bank also said it will target 1 percent inflation “for the time being.”

“Dollar-yen is going to bounce back because we know the underlying story beyond U.S. payrolls,” said Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in New York. “More interesting stuff is coming out of the BOJ next week, that they’re going to introduce more easing.”

To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Allison Bennett in New York at abennett23@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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