The euro slid to the lowest level in more than 11 years versus the yen as speculation Europe’s sovereign-debt crisis is worsening spurred demand for safety.
The 17-nation currency dropped to the weakest versus the dollar since June 2010 as a report said Greece may miss debt- reduction targets. The euro fell for a fifth day against the yen after Moody’s Investors Service cut its outlook for Germany and the Netherlands yesterday. The yen rose versus all of its 16 most-traded peers on haven demand even as Japan’s government voiced readiness to combat its strength.
“We’re seeing a general retreat from risk,” Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York, said in a telephone interview. “A Greece restructuring brings about the nasty prospect for infighting between European Central Bank and European Union officials about how to cut that debt load.”
The euro dropped 0.7 percent to 94.31 yen at 5 p.m. New York time and reached 94.12 yen, the lowest since November 2000. Its five-day losing streak is the longest since the period ended May 31. The single currency lost 0.5 percent to $1.2061 and touched $1.2043, the weakest level since June 2010. The yen rose 0.3 percent to 78.18 per dollar.
The shared currency has slumped 5.6 percent this year, the worst performance among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen has advanced 0.4 percent, and the dollar has gained 2.3 percent.
Switzerland’s franc weakened, approaching parity with the dollar for the first time since December 2010. The currency depreciated 0.5 percent to 99.58 centimes per dollar and was little changed at 1.2010 per euro.
Spanish bonds dropped, pushing up the 10-year yield to a euro-era record 7.636 percent, above the 7 percent threshold level for global bailouts of Greece, Ireland and Portugal. The yield on similar-maturity Italian bonds climbed to 6.598 percent, the most since Jan. 17.
“We are going to see another bailout for Spain,” Adam Myers, a senior foreign-exchange strategist in London at Credit Agricole SA, said in a radio interview on “Bloomberg - The First Word” with Ken Prewitt. “We’ve reached a point now where the interest expense is unsustainable at current levels.”
Moody’s said yesterday the increasing likelihood of collective support for European countries including Spain and Italy is “adversely” affecting the Aaa credit ratings of Germany and the Netherlands. It lowered to negative the ratings outlooks for the two countries and Luxembourg.
“The negative outlook for some of the strongest countries in Europe is troubling, and that got the ball moving as far as some of the softness we’re seeing,” Andrew Busch, a global currency strategist at Bank of Montreal in Chicago, said in a telephone interview. “The rating agencies are just reflecting the rising uncertainty that’s out there on debt costs.”
The euro also weakened as a report showed the region’s services and manufacturing output shrank for a sixth month in July. A composite index was unchanged at 46.4 from June, Markit Economics said in an initial estimate. A reading below 50 indicates contraction.
The euro remained lower versus the dollar and yen after German Finance Minister Wolfgang Schaeuble and Spanish Economy Minister Luis de Guindos said Spain’s borrowing costs don’t reflect the strength of its economy and pledged to work toward deeper integration to fight the debt crisis. They issued a joint statement after a meeting in Berlin today.
The shared currency has a 30 percent chance of breaking up by year-end and a 52.6 percent chance of dissolving by the end of 2013, according to Dublin-based Intrade.com.
“Investors are becoming increasingly concerned about their ability to access markets,” Jeremy Stretch, head of foreign- exchange strategy at Canadian Imperial Bank of Commerce in London, said in a telephone interview. “There are lots of indications that the euro should be weaker.”
Officials of Greece’s troika of international creditors -- the European Commission, the ECB and the International Monetary Fund -- arrived in Athens today amid doubts the nation will meet the commitments attached to its bailout funding.
A report from Reuters citing European Union officials said Greece was seen missing targets for reducing debt and may require more restructuring. German Vice Chancellor Philipp Roesler told the German broadcaster ARD on July 22 it was unlikely Greece could meet its bailout-program obligations and that he was “very skeptical” European leaders would be able to rescue the country.
The euro may be poised to reverse losses against the yen and the dollar, a technical indicator showed. The 14-day relative strength index for the shared currency versus the yen fell below the 30 level, which indicates an asset may have fallen too far, too fast, to 26.7. The gauge was at 28.5 for the euro against the dollar.
The yen advanced even as Japanese Finance Minister Jun Azumi said he was ready to take decisive action on the currency if needed. The yen’s advance doesn’t reflect the nation’s economic fundamentals, he told reporters in Tokyo.
Japan’s unilateral interventions in currency markets last year were successful as they stemmed the currency’s rise against the dollar, said a Minister of Finance official who requested anonymity. Japan sold at least 14.3 trillion yen ($183 billion) in last year’s interventions.
The yen tends to strengthen during periods of financial turmoil because Japan’s current-account surplus makes it less reliant on foreign capital.
Australia’s dollar fell against its U.S. counterpart as risk appetite ebbed, erasing a gain of as much as 0.6 percent that followed an increase in a Chinese manufacturing gauge. The currency traded at $1.0221, down 0.4 percent, after rising earlier to $1.0316.
HSBC Holdings Plc and Markit Economics said a preliminary July reading of their manufacturing gauge for China climbed to 49.5 from a final 48.2 for June. China is Australia’s biggest trading partner.
Mexico’s peso was the worst performer among major currencies, sinking 0.9 percent to 13.7090 per dollar.
To contact the reporter on this story: Joseph Ciolli in New York at firstname.lastname@example.org