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Euro Snaps Seven-Day Rally Versus Yen Amid Crisis Talks

The euro snapped a seven-day stretch of gains against the yen as European finance ministers met in Luxembourg to discuss the region’s sovereign-debt crisis amid speculation Spain is struggling to avoid a bailout request.

The shared currency slid versus most major peers after data showed German industrial production declined, adding to evidence the fiscal turmoil is weighing on growth. German Chancellor Angela Merkel visits Greece tomorrow for the first time since the crisis began in 2009. The yen climbed as investors sought a haven. South Africa’s rand sank to the weakest level against the dollar in more than three years amid spreading labor strikes.

“There’s not a lot of liquidity in the market today,” Michael Lavina, a senior trader in Stamford, Connecticut, at Faros Trading LLC, said in a telephone interview. “The largest issue that people are waiting on is whether or not Spain will request a bailout in a formal way, as well as if there’s any stark clarity on what will go on with Greece.”

The euro depreciated 1 percent to 101.58 yen at 5 p.m. New York time, and slid as much as 1.4 percent. The shared currency moved below its 200-day moving average of 101.78 yen after closing above it the prior two sessions. It had last gained for seven straight days in February

Europe’s 17-nation currency lost 0.6 percent to $1.2968. The dollar fell 0.4 percent to 78.33 yen.

Sterling Sinks

Sterling weakened for a second day versus the dollar as a survey by Lloyds Bank showed Britons’ assessment on employment prospects fell to negative 49 last month from negative 43 in August, the first decline in five months. The pound declined against the euro for a seventh day, the longest run since November 2009.

The U.K. currency fell 0.7 percent to $1.6027 and slipped 0.2 percent to 80.92 pence per euro.

The pound may slide toward $1.5912 to $1.5900, its lowest in more than a month, after it failed last week to advance above key resistance levels, according to Karen Jones, head of fixed- income, commodity and currency technical analysis at Commerzbank AG. Resistance is an area on a chart where sell orders may be clustered. The pound touched $1.6217 on Oct. 5.

India’s rupee slumped the most this year against the greenback on a closing basis as investors sought a haven amid Europe’s crisis talks. The currency, which dropped against its 31 most-traded peers, fell 1.5 percent to 52.6450 per dollar.

The Czech koruna slid versus all except two of its major counterparts after the country’s industrial output slumped as the European debt crisis damped demand for exports. The currency weakened 0.9 percent to 19.2368 per dollar. It declined 0.2 percent to 24.935 per euro.

‘Scaling Back’

“The market is scaling back hopes that there’s going to be an immediate resolution to the broader euro-zone crisis,” Ravi Bharadwaj, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co. (WU), said in a telephone interview. “How the euro-zone stability mechanism plays a part in resuscitating economic growth in Spain and Greece still remains a very murky question.”

The European Central Bank’s planned purchases of government bonds, called outright monetary transactions, to curb the debt crisis will help support the euro, which will appreciate to $1.32, according to Peter Rosenstreich, chief foreign-exchange strategist at Swissquote Bank SA. He spoke in an interview on Bloomberg Television’s “The Pulse” with Guy Johnson.

Finance ministers from the 17-member euro area are discussing issues including Spain in Luxembourg and leaders from all 27 nations in the European Union will meet tomorrow. The European Council gathers for a summit in Brussels on Oct. 18-19.

Rescue Fund

The euro-bloc finance ministers also declared the 500 billion-euro ($648 billion) European Stability Mechanism operational, while saying that Spain, the permanent rescue fund’s biggest potential near-term customer, isn’t on the verge of tapping it.

Spain has hesitated to set the ECB’s plan in motion by requesting aid, a condition the bank insists on. Spanish Prime Minister Mariano Rajoy has said his government is considering a request, while damping speculation that it will come soon.

Greece, where the European debt crisis began, needs to find spending cuts to maintain access to 240 billion euros in rescue funds and is trying to reach an agreement with its official lenders to release the next payment of 31 billion euros.

Germany’s industrial production decreased 0.5 percent in August from July. The median estimate of economists surveyed by Bloomberg News called for a 0.6 percent drop.

The euro gained 1.2 percent in the past month against nine developed-nation counterparts tracked by Bloomberg Correlation- Weighted Indexes. The yen lost 0.3 percent and the dollar fell 0.2 percent.

Rand Drops

The South African rand fell versus all of tis 16 most- traded counterparts. It declined for a fourth day versus the greenback, the longest losing streak since August, as workers at Transnet SOC Ltd., South Africa’s ports and rail utility, went on a one-day strike. They joined truck drivers who’ve been in industrial action since Sept. 24.

The rand dropped 1.3 percent to 8.8928 per dollar after earlier falling as much as 2.5 percent to 8.9942, the weakest level since April 2009.

Implied volatility among major currencies, which signals the expected pace of price swings, increased as much as 26 basis points, or 0.26 percentage point, to 7.76 percent, a JPMorgan Chase & Co. index for Group-of-Seven currencies showed. It was the most since Sept. 27. Lower volatility makes investments in currencies with higher key lending rates more attractive because the risk in such trades is that market moves will erase profit. The five-year average is 12.4 percent.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

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

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