Euro Falls as Italy’s Monti Warns of Crisis Divisions
The euro weakened against the yen and the dollar after Italy’s Prime Minister Mario Monti said divisions within the 17-nation currency bloc are threatening the European Union’s future.
Europe’s currency fell from its strongest level in more than three weeks against the yen after a report showed investor confidence in the region dropped for a fifth month in August as the it grapples with the almost three-year-old financial turmoil. Sweden’s krona declined against all 16 major peers after data showed service production slid in June.
“The euro is looking wobbly again,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “There’s still a great deal of residual uncertainty about all events European.”
The euro dropped 0.3 percent to 96.91 yen at 7:44 a.m. New York time, after touching 97.80, the strongest level since July 12. It lost 0.1 percent to $1.2371, after gaining as much as 0.5 percent to $1.2444, the most since July 5. The U.S. currency slipped 0.2 percent to 78.34 yen.
“The tensions that have accompanied the euro zone in the past years are already showing signs of a psychological dissolution of Europe,” Monti told Germany’s Der Spiegel magazine in an interview published yesterday. He urged swift action to lower bond yields in the region’s peripheral nations.
Greater calm “would be good” in the debate over policy responses to the crisis, Germany’s deputy government spokesman Georg Streiter told reporters in Berlin today, when asked whether tensions in Europe were worsening.
European Central Bank President Mario Draghi outlined a plan last week under which the central bank may buy debt in tandem with the euro area’s bailout fund, while saying the details still need to be worked out over the coming weeks. Bundesbank President Jens Weidmann said in an interview published a day before Draghi’s comments that the ECB shouldn’t exceed its mandate.
While Draghi’s pledge on July 26 that he would do “whatever it takes” to defend the euro succeeded in stemming a slide that pushed the 17-nation currency down about 6 percent since late March against its major counterparts, traders in the options market raised bets against the currency.
Three-month options show that the premium for puts, which grant the right to sell the euro versus the dollar, over calls, which confer the right to buy, increased to 1.62 percentage points at the end of last week from 0.85 percentage point on July 20. The gain is the biggest since the period through May 18, when Greece headed toward elections critical for its continued membership in the currency union.
An index measuring sentiment in euro bloc slid to minus 30.3, from minus 29.6 in July, Limburg, Germany-based Sentix said in a statement today.
“There are worries about worsening economic fundamentals as European countries move toward austerity,” said Kengo Suzuki, a currency strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank by market value. “The euro will grind lower in the medium-to-longer term.”
Germany’s factory orders fell 7 percent in June from a year earlier, what would be the steepest drop since October 2009, according to economist estimates before the figure is released in Berlin tomorrow. Italy’s national statistics office will say industrial output declined in June by 6.5 percent from a year earlier, a separate Bloomberg survey of economists showed before the release, also scheduled for tomorrow.
Europe’s common currency has depreciated 5.2 percent this year, the biggest decline among 10 developed-nation currencies tracked by the Bloomberg Correlation-Weighted Indexes. The dollar is unchanged while the yen fell 2 percent.
The Swedish krona dropped 0.6 percent to 6.7431 per dollar and was 0.4 percent weaker at 8.3433 against the euro.
Service production fell 0.2 percent from May, when it gained 2.3 percent, Statistics Sweden said today in a press release. Production rose an annual 1.1 percent, compared with May’s 1.9 percent jump.
The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the currency against those of six U.S. trading partners, advanced 0.2 percent to 82.458, rising from the weakest level since July 4, before Federal Reserve Chairman Ben S. Bernanke speaks at a conference in Cambridge, Massachusetts.
The Fed said on Aug. 1 that it “will provide additional accommodation as needed to promote a stronger economic recovery.” The central bank bought $2.3 trillion of mortgage and Treasury debt from 2008 to 2011 in two rounds of so-called quantitative easing to lower borrowing costs.
The Labor Department said on Aug. 3 that U.S. payrolls increased by 163,000 in July, the most since February and exceeding the 100,000 gain estimated by economists surveyed by Bloomberg News. The unemployment rate rose to 8.3 percent from 8.2 percent in June.
The euro’s technical outlook is “constructive” after the five-day moving average crossed above the 20-day moving average, said Marc Chandler, global head of currency strategy in New York at Brown Brothers Harriman & Co.
“A convincing move above the $1.2400 area should be respected in anticipation of another 2-3 cent advance in the coming weeks,” Chandler wrote in a research note.
South Korea’s won strengthened against all 16 most actively traded counterparts, rising 0.5 percent against the dollar to 1,129.23. Malaysia’s ringgit gained 0.7 percent versus the greenback to 3.1074.
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