Euro Remains Lower Before Italy’s Debt Sales

The euro was set for the biggest quarterly drop versus the yen since September amid concern the region’s debt crisis is spreading to bigger economies.

The 17-nation currency remained lower against the dollar following a three-day decline before an Italian debt auction today and data forecast to show economic confidence in the euro bloc deteriorated. At a summit starting in Brussels today, European Union leaders will convene for the first time since pro-bailout parties won at Greek parliamentary elections on June 17. The dollar slid versus most major counterparts as gains in stocks supported demand for higher-yielding assets.

“People are looking for further weakness in the euro,” said Alex Sinton, director for institutional foreign exchange in Auckland at Australia & New Zealand Banking Group Ltd. (ANZ) “Growth there is waning.”

The euro slid 0.1 percent to 99.29 yen as of 10:02 a.m. in Tokyo from the close in New York yesterday. It rallied 0.2 percent to $1.2491 after losing 0.8 percent over the past three days. The dollar slid 0.3 percent to 79.50 yen.

Since the end of March, Europe’s shared currency has fallen 10 percent versus the yen and 6.4 percent against the dollar. As the first half of the year nears its close, the dollar is up 3.4 percent in 2012 against the yen.

Italy is scheduled to sell 2.5 billion euros ($3.1 billion) of five-year notes and 3 billion euros of 10-year debt today, following two auctions this week that saw borrowing costs increase. The 185-day bills sold yesterday got a rate of 2.957 percent, while the zero-coupon, two-year notes offered on June 26 yielded 4.712 percent. Both were the highest this year.

The nation’s 10-year yields climbed to a five-month high of 6.34 percent on June 14, nearing the 7 percent level that spurred Greece, Ireland and Portugal to seek bailouts.

European Confidence

An index of executive and consumer sentiment in the euro area probably fell to 89.6 this month, the lowest since October 2009 and down from 90.6 in May, according to the median estimate of economists in a Bloomberg News survey. The European Commission will release the figure today.

EU leaders meeting today and tomorrow are due to discuss a plan seen playing out over more than a decade for closer European integration. The blueprint, written by EU President Herman Van Rompuy, centers on common banking supervision and deposit insurance, along with a “criteria-based and phased” move toward joint debt issuance.

The blueprint also suggests the EU could impose upper limits on budgets and debt levels of nations that use the euro.

“Until it begins, we don’t know what will come out of the summit,” said Kazuo Shirai, a trader at Union Bank NA in Los Angeles. “We can’t rule out the possibility that something substantial will emerge.”

The dollar slid against 15 of its 16 major counterparts as the MSCI Asia Pacific Index climbed 0.9 percent, rising a second day. The Australian dollar jumped 0.3 percent to $1.0114.

“The markets are leaning toward risk-on as you see stocks trading higher,” said Junichi Ishikawa, an analyst in Tokyo at IG Markets Securities Ltd. “That’s leading to dollar weakness across the board.”

To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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