Leu Falls to Lowest in a Month on Renewed Euro Area Discord

Romania’s leu declined to the lowest in more than a month as European leaders struggled to overcome a crisis-fighting stalemate, lowering appetite for riskier assets.

The currency depreciated 0.1 percent to 4.5172 per euro at 5 p.m. in Bucharest, the weakest on a closing basis since Aug. 13, according to data compiled by Bloomberg. Yields on Romania’s country’s 2018 euro-denominated bond rose eight basis points, or 0.08 percentage point, to 4.86 percent.

Chancellor Angela Merkel and President Francois Hollande underlined Franco-German disagreement over the weekend as they clashed on a timetable to introduce joint oversight of the region’s banking sector, with Merkel rebuffing Hollande’s appeal to activate it “the earlier, the better.” Romania plans to hold parliamentary elections on Dec. 9. A power struggle between President Traian Basescu and Prime Minister Victor Ponta led to a presidential impeachment vote last month, which was subsequently invalidated due to lower than required turnout.

“Any disappointment in the euro zone has always been quite detrimental for leu assets and we expect this to particularly remain the case into the December elections,” Societe Generale SA economist Guillaume Salomon and BRD-Groupe Societe Generale SA (BRD) economist Monica Croitoru wrote in a report to clients today.

Germany’s governing coalition showed growing exasperation with Spain, as a senior ally of Merkel said Prime Minister Mariano Rajoy must stop prevaricating and decide whether Spain needs a full rescue.

Technicals

The leu declined as 4.52 lei per euro proved to be an important resistance level, Florentina Cozmanca, a senior economist at Royal Bank of Scotland Romania SA, wrote in a note today. “There is a lot of uncertainty related to external and internal factors.”

Romania’s central bank lent 12 billion lei ($3.4 billion) in one-week repurchase agreements auction today, providing funding in line with bids from nine lenders, data published on Bloomberg show. Funding was below bids throughout August, supporting the leu by limiting currency supply.

To contact the reporters on this story: Andra Timu in Bucharest at atimu@bloomberg.net; Irina Savu in Bucharest at isavu@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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