Euro Declines as Risk Appetite Ebbs on Debt Crisis, Economy

The euro reached the lowest level in almost three weeks amid a growing divide over Europe’s new bailout strategy and data that showed the region’s three-year- old sovereign-debt crisis is weighing on its economy.

The dollar rose amid higher haven demand. The U.S. securities industry canceled stocks trading today and tomorrow as Hurricane Sandy headed toward the New York City area. Retail sales in Spain slid 11 percent in September from a year ago, a report showed, and the nation’s central bank set up a so-called bad bank to buy impaired property assets. The euro touched a two-week low versus the yen after German Finance Minister Wolfgang Schaeuble rejected another Greek debt restructuring.

“A collapsing Spanish economy and concerns about the effects of Hurricane Sandy gave traders two good reasons” to sell the euro, said Joseph Trevisani, chief market strategist at WorldWideMarkets Ltd. in Woodcliff Lake, New Jersey. “Spanish reluctance to ask for a bailout is slowly mitigating the positive euro effect of the European Central Bank’s bond-buying plan.”

The euro weakened 0.3 percent to $1.2904 at 4:59 p.m. New York time and touched $1.2885. It reached $1.2883 on Oct. 26, the lowest level since Oct. 11. The 17-nation common currency was little changed at 102.98 yen, after sliding as low as 102.52, the least since Oct. 16. Japan’s currency declined 0.2 percent to 79.80 per dollar.

The shared currency pared a third straight monthly gain to 0.3 percent.

‘Already Moved’

“For the euro, it’s more rotation out of the currency because it’s already moved a fair amount,” Noel Hebert, chief investment officer at Bethlehem, Pennsylvania-based Concannon Wealth Management, which oversees about $250 million, said in a phone interview of today’s move. “It doesn’t feel like people are overanxious to rush back into the dollar, given the election and the uncertainty going on at the end of the year.”

The dollar remained stronger versus the euro even after consumer spending in the U.S. climbed more than forecast in September as incomes grew. Household purchases, which account for about 70 percent of the economy, rose 0.8 percent, the most since February, after a 0.5 percent gain the prior month, a Commerce Department report showed today in Washington. A Bloomberg survey forecast a 0.6 percent rise.

The U.S. unemployment rate rose to 7.9 percent this month, from 7.8 percent in September, a Bloomberg survey forecast before the Labor Department reports the data Nov. 2.

Hurricane Sandy

Hurricane Sandy, 900 miles across, shut the U.S. federal government and state administrations from Virginia to Massachusetts, halting travel and upending the presidential campaign. It may knock out power to 10 million people for a week or more.

“There has been some appetite to buy U.S. dollars this morning just on the back of what’s occurring in North America with the weather,” Dean Popplewell, head analyst in Toronto at the online currency-trading firm Oanda Corp., said in a telephone interview. “At the moment, it’s certainly risk-off with regard to Europe. People feel happier buying U.S. dollars and will do so heading into the U.S. election” on Nov. 6.

The Canadian dollar weakened below parity with its U.S. counterpart for the first time since August as risk appetite shrank and global stocks and commodities declined.

The loonie, as the currency is known for the image of the aquatic bird on the C$1, depreciated 0.4 percent to C$1.0011 per U.S. dollar. The Canadian currency last closed at parity Aug. 6.

Peso Sinks

Mexico’s peso weakened the most among the greenback’s major peers, dropping as Hurricane Sandy bore down on a stretch of its biggest export market. The currency weakened 0.7 percent to 13.0783 per dollar and touched 13.1076, the lowest level since Sept. 6.

The MSCI World Index of equities in developed nations declined 0.3 percent, and the Standard & Poor’s GSCI index of raw materials fell as much as 0.9 percent.

The euro reached its low of the day versus the dollar after Bank of Spain Deputy Governor Fernando Restoy set out plans for establishing a bad bank to buy impaired property assets from the lenders it is bailing out. The nation is creating the bank as part of its 100 billion-euro European bank bailout.

Italian Premier Mario Monti met his Spanish counterpart, Mariano Rajoy, in Madrid as pressure mounts on the Iberian nation to request aid. Rajoy said he’ll request a bailout as soon as he judges it’s in his country’s interests.

The euro has strengthened against the greenback this month as European officials wait for Spain to trigger a bailout plan unveiled by ECB President Mario Draghi in September and designed to draw a line under the region’s debt crisis.

Spanish Reluctance

While the program to buy potentially unlimited quantities of government debt helped to soothe bond markets, Spain has held off from unlocking the plan by requesting a sovereign bailout.

The 17-member common currency slid against the dollar and yen today after Schaeuble, speaking in an interview with German radio Deutschlandfunk broadcast yesterday, said it would be “a bit unrealistic” to impose more losses on private bondholders. German Chancellor Angela Merkel’s government is willing to consider a European Central Bank proposal for a buyback of Greek debt, Steffen Seibert, Merkel’s chief spokesman, said today.

European policy makers are awaiting a report on Greece’s progress in meeting internationally agreed targets compiled by the troika of the European Commission, the International Monetary Fund and the ECB.

The euro dropped 1.6 percent in the past six months, the biggest loser after the Swiss franc among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen gained 2.1 percent and the dollar rose 1.4 percent.

Krona Gains

Sweden’s krona strengthened against the euro and the dollar after September retail sales rose a monthly 1.7 percent compared with a 0.4 percent decline a month earlier. That beat a 0.4 percent median estimate of six economists surveyed by Bloomberg.

The krona gained 0.5 percent against the euro to 8.6221 and appreciated 0.3 percent to 6.6824 per dollar.

Gains in the yen were limited before Bank of Japan policy makers meet tomorrow after holding off from easing policy on Oct. 5. BOJ board members are facing political pressure to ease policy as data last week showed consumer prices fell for a fifth-straight month, making the central bank’s 1 percent inflation goal elusive.

To contact the reporters on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net; 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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