Euro Falls Versus Dollar as Spain Delays Bailout Request

Euro Approaches 8-Week High as Rajoy, Hollande Hold Crisis Talks
France's President Francois Hollande, left, gestures as he walks with Spain's Prime Minister Mariano Rajoy, ahead of a working lunch at the Moncloa palace in Madrid. Photographer: Angel Navarrete/Bloomberg

The euro declined for a second day against the dollar after Spain’s Prime Minister Mariano Rajoy said his government would delay deciding whether to seek a sovereign bailout until the aid conditions are clear.

Europe’s shared currency approached an eight-week high earlier as Chinese Premier Wen Jiabao pledged to consider European bond purchases and Italy’s borrowing costs fell at an auction. The euro declined versus the yen as Rajoy and French President Francois Hollande pressed the European Central Bank to implement decisions from a June summit to reduce borrowing costs. Norway’s krone rose versus most major peers even after a policy maker signaled the central bank won’t accept persistent currency strength.

“Spain has not requested help, which was something the market had hoped they would do to put the country on a better path to dealing with its debt crisis,” Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co., said in a telephone interview. “This does little to inspire investor confidence. As a result, they’re starting to lighten up on some of their pro-euro bets.”

The euro fell 0.2 percent to $1.2506 at 5 p.m. New York time, after rising as much as 0.3 percent. Europe’s shared currency declined 0.3 percent to 98.33 yen. The dollar fell 0.1 percent to 78.63 yen.

The euro advanced 0.9 percent in the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. Norway’s krone rose 3.2 percent to lead the gainers. The dollar fell 0.9 percent and the yen slid 1.6 percent. The Australian dollar’s 3.2 percent loss paced decliners.

Aussie Dollar

Australia’s dollar declined to a nearly two-month low against the euro as China’s Shanghai Composite Index slipped to its lowest level since February 2009. China is Australia’s largest export market.

The so-called Aussie lost 0.4 percent to A$1.2148 per euro after falling as much as 0.5 percent. The currency also dropped 0.6 percent to $1.0289 after decreasing to $1.0277, its lowest level in August.

Norway’s krone gained against the euro after Norges Bank Deputy Governor Jan F. Qvigstad warned speculators against testing the central bank’s resolve following the currency’s appreciation to a nine-year high this month.

“They can talk about whatever they want, but unless they’re acting or doing something significant to change the trajectory of it, it’s really hard to see why the markets would listen a vice finance minister,” Andrew Busch, a global currency strategist at Bank of Montreal in Chicago, said in a telephone interview.

Krone, Rand

The krone rose 0.2 percent to 7.2759 per euro after reaching 7.2502 per euro on Aug. 10, the strongest level since Jan. 2003. It gained 0.1 percent to 5.8179 per dollar.

The South African rand slumped to its weakest level in five weeks as reports from Germany, Japan and South Korea deepened concern the global economy is slowing, damping prospects for South Africa’s exports.

The currency retreated as much as 1.1 percent to 8.4973 per dollar, the weakest level since July 25. The rand is the worst performer for both the month and quarter against the greenback.

Spain will delay a decision on whether to seek a sovereign bailout until the aid conditions are clear, Rajoy said following a meeting with Hollande. The discussions were part of a round-robin of diplomacy intended to help contain the European sovereign-debt crisis.

Wen Comments

“When it’s known exactly what’s on offer, I will take a decision,” Rajoy told a joint briefing.

The two met after the Spanish region of Murcia became the third to say it will need emergency loans and Valencia signaled it needs funds, a day after Catalonia said it needed 5 billion euros ($6.3 billion).

ECB President Mario Draghi took to the German media yesterday to take on Bundesbank orthodoxy in pressing his case for extraordinary market intervention. He has yet to spell the details of a bond-purchasing plan announced Aug. 2 amid opposition from Germany’s Bundesbank.

“China is willing, on condition of fully evaluating the risks, to continue to invest in the euro-zone sovereign debt market,” Wen said after meeting German Chancellor Angela Merkel in Beijing. He also urged Spain, Italy and Greece to take steps to prevent a worsening of the euro region’s sovereign-debt crisis.

Italy Auction

Italy sold 7.29 billion euros of five- and 10-year securities, compared with a 7.5 billion-euro maximum target. The average yield on the 10-year bond was 5.82 percent, down from 5.96 percent at a previous auction on July 30.

“The strength of the Italian auction was beneficial for the euro,” Greg Anderson, the North American head of Group of 10 currency strategy at Citigroup Inc. in New York, said in a telephone interview. “There was lots of participation at a lower rate.”

The greenback strengthened against most major peers as investors weighed whether Bernanke will signal a new round of stimulus for the U.S. economy when he speaks in Jackson Hole, Wyoming, tomorrow.

Many policy makers at the Federal Open Market Committee’s last meeting said additional stimulus probably will be needed soon unless the economy shows signs of a durable pickup, according to minutes of the July 31-Aug. 1 policy discussions.

Bernanke said last month he’s ready to add stimulus as needed, “but he’s been doing that for the last six months,” Chris Walker, a currency strategist at UBS AG in London, said in an interview on Bloomberg Television’s “Lunch Money” with Dominic Chu. “If we’re going into the meeting with this mindset, the initial reaction will be a little disappointment.”

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