The euro weakened for a fifth day versus the dollar after an election loss for Germany’s ruling party stoked concern support is fading for bailouts of Europe’s most-indebted nations, boosting demand for refuge currencies.
The Swiss franc rose against all major peers as Greek two-year note yields surged above 50 percent and the cost of insuring Europe’s government bonds from default rose to records. The Dollar Index climbed to a one-month high as economists said U.S. data tomorrow will show service industries slowed, adding to signs global growth is weakening. The yen gained versus the euro after German Chancellor Angela Merkel’s Christian Democratic Union was defeated in the election in her home state.
“Another state that Merkel’s CDU has failed to secure in the vote, that’s six now in total, has spurred some euro selling,” said Lauren Rosborough, a senior strategist at Westpac Banking Corp. on London. “We’ve got risk aversion across the board with dollar buying, Swiss buying, gold a little bit stronger and the euro has been sold off.”
The euro declined 0.7 percent to $1.4106 as of 5:20 p.m. in London after falling to $1.4061, the weakest level since Aug. 5. The currency dropped 0.7 percent to 108.40 yen, and lost 1.2 percent to 1.10677 francs. The yen was little changed at 76.89 per dollar.
The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, climbed 0.5 percent to 75.152, after rising to 75.319, the highest level since Aug. 5.
The Stoxx Europe 600 Index of shares slumped for a second day, losing 4.1 percent, and gold for immediate delivery rose to as much as $1,903 an ounce.
The Social Democrats, Germany’s main opposition party, won yesterday’s election in Mecklenburg-Western Pomerania with 36.1 percent of the vote, while Merkel’s party had 23.3 percent, ZDF television projections showed.
The result in the eastern state, where Merkel’s election district is located, means her national coalition has been defeated or lost votes in all six German state elections this year as voters resist her bid to prevent a euro-region breakup by putting more taxpayer money on the line for bailouts.
“Positioning has turned against the euro again and news flow isn’t helping,” Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in London, wrote in an e-mailed note. Merkel’s defeat “simply adds to the sense that saving the euro is going to be made more difficult by opposition from within Germany.”
German 10-year bund yields dropped to a record 1.84 percent, while the yield on similar maturity Greek securities surged to a euro-era high of 19.34 percent. Credit-default swaps on Greece soared 146 basis points to 2,496, according to CMA. Contracts on Italy jumped 29 basis points to a record 431.5, and France was up 12.5 at an all-time high of 184.
European services and manufacturing growth slowed in August as austerity measures and waning demand clouded growth prospects. A composite index based on a survey of euro-area purchasing managers in both industries dropped to 50.7 from 51.1 in July, Markit Economics said today. A figure above 50 indicates growth.
The European Central Bank will cut interest rates by 33 basis points over the next 12 months, according to a Credit Suisse Group AG index based on swaps. Policy makers will leave the benchmark at 1.5 percent at their next meeting on Sept. 8, according to all the 57 economists surveyed by Bloomberg.
“If the ECB takes away the tightening bias, it’s going to take away some support out of the euro,” said Alex Sinton, a senior dealer at ANZ National Bank Ltd. in Auckland, New Zealand. “You would see the euro moving down to the $1.4010 area.”
The yen appreciated for a fifth day versus the euro as signs the U.S. economy is slowing spurred demand for safer assets. The Institute for Supply Management’s non-manufacturing index fell to 51 last month, the lowest since January 2010, according to a Bloomberg News survey before the data tomorrow.
U.S. payrolls were unchanged in August, the weakest reading since September 2010, the Labor Department said Sept. 2. President Barack Obama is scheduled to outline his plans to spur the economy in a Sept. 8 address to Congress. U.S. financial markets are shut today for a holiday.
“The market went into payrolls hopelessly optimistic and that optimism wasn’t rewarded,” said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp., Australia’s second-largest lender. “Developments in Europe justify further risk aversion.”
The Swiss franc, a traditional haven from market turmoil, surged 2.4 percent against New Zealand’s dollar and 1.5 percent versus the Mexican Peso.