Dollar, Yen Advance as Supercommittee Fails to Reach Agreement

Yen, Dollar Rise, U.S. Committee Said to Fail in Debt Talks
The dollar advanced against higher-yielding counterparts including the Australian dollar and South African rand. Photographer: Tomohiro Ohsumi/Bloomberg

The dollar and the yen rose versus their major peers on demand for safety as Congress’s budget supercommittee said it failed to reach agreement on cutting the U.S. deficit.

The euro pared earlier losses against the greenback and yen amid speculation a decline that took the 17-nation currency to almost the lowest in six weeks was too steep to be sustained. It had dropped as Spain’s Socialists became the fifth European government to be ejected because of the region’s debt crisis. Australia’s dollar weakened to the lowest level in six weeks on reduced demand for higher-yielding assets. Stocks tumbled.

“The range of issues is still the same: uncertainty in Europe, and now you have the some impact from the supercommittee discussions as well,” said Vassili Serebriakov, a currency strategist in New York at Wells Fargo & Co. “At this point, a lot of it is less liquidity in the markets.”

The dollar gained 0.3 percent versus the euro to $1.3489 at 5 p.m. New York time after earlier strengthening to $1.3430. It touched 1.3422 on Nov. 17, the strongest level since Oct. 10. The shared currency fell 0.3 percent to 103.71 yen, after sliding earlier to 103.23 yen, the lowest level since Oct. 10. The dollar was little changed at 76.89 yen.

The congressional supercommittee’s failure to reach an accord extended partisan gridlock into the 2012 election year and set the stage for $1.2 trillion in automatic spending cuts.

“After months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline,” said panel co-chairmen Representative Jeb Hensarling of Texas and Senator Patty Murray of Washington.

S&P Ratings Unaffected

The U.S.’s credit ratings and outlook aren’t affected by the supercommittee’s failure, Standard & Poor’s said. The rating company stripped the U.S. of its top AAA credit rating on Aug. 5, cutting the rating to AA+ after months of political gridlock about deficit cuts.

“The fiscal committee’s inability to agree on fiscal measures that would stabilize U.S. government debt as a share of GDP is consistent with our Aug. 5 decision to lower our rating to AA+,” S&P said in a statement. “However, we expect the caps on discretionary spending as laid out in the Budget Control Act of 2011 to remain in force. If these limits are eased, downward pressure on the ratings could build.”

Panel Deadline

Today was the deadline for the Congressional Budget Office to receive information for analyzing how a proposal would affect the U.S. budget deficit, in advance of the supercommittee’s Nov. 23 target date for reaching a deal. The failure to agree sets the stage for $1.2 trillion in automatic spending reductions.

“The fear is that you get a credit downgrade if you get the U.S. reneging on some of the automatic cuts for 2013,” Alan Ruskin, global head of Group-of-10 foreign-exchange strategy at Deutsche Bank AG in New York, said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt.

Australia’s dollar slid 1.7 percent to 98.41 U.S. cents and touched 98.09, the lowest level since Oct. 10. It dropped for a sixth day against the yen, its longest losing streak since May, tumbling 1.7 percent to 75.65. Mexico’s peso was the biggest loser versus the greenback, falling 2.1 percent to 14.0165.

The Standard & Poor’s 500 Index fell for a fourth day, the longest losing streak in two months, dropping 1.9 percent.

IntercontinentalExchange Inc.’s Dollar Index, used to track the currencies of six major U.S. trading partners, increased for the first time in three days, rising 0.4 percent to 78.308.

Brazil’s real sank below 1.8 per dollar for the first time in a month as appetite ebbed for riskier assets. It fell 1.1 percent to 1.8069 per dollar and touched 1.8187, the weakest since Oct. 6.

12-Month Loss

The euro fell 1.9 percent over the past 12 months against nine developed-nation counterparts tracked by Bloomberg Correlation-Weighted Indexes, as slumping government bonds spurred concern the region’s debt crisis is spreading to bigger nations, including Italy and France. The yen climbed 6.8 percent, and the dollar slipped 1 percent.

The cost for European banks to fund in the U.S. currency swelled to the most expensive since December 2008. The three-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, increased to 1.39 percentage points below the euro interbank offered rate, after closing at 1.30 at the end of last week.

10-Month Low

Traders are paying record premiums for the right to sell euros, signaling the currency may drop to a 10-month low amid concern Europe can’t solve its debt crisis, according to Nomura Holdings Inc.

Options traders turned the most bearish ever on the euro Nov. 16. The premium paid for options granting the right to sell euros over those that allow for purchases closed at minus 4.39 percentage points, the most for data going back to 2003. The shared currency probably will drop 4 percent to $1.30 by year-end, the weakest since January, according to Nomura, Japan’s biggest brokerage.

In Spain’s elections, People’s Party leader Mariano Rajoy won, beating the Socialist Party’s candidate Alfredo Perez Rubalcaba. Rajoy, who said on Nov. 18 he hoped Spain wouldn’t need a bailout before his government takes over in a month’s time, has pledged to cut the budget deficit and regain the nation’s AAA credit rating.

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