Euro Drops 2nd Day in a Row

Studys shows German confidence level falling; Spanish yields climb.

The euro declined for a second day before a report forecast to show German investor confidence fell to a three-year low as Europe’s debt crisis threatens to curb economic growth.

The 17-nation currency touched a one-month low against the yen as Spain prepares to sell as much as 4 billion euros ($5.4 billion) of bonds on Nov. 17 after Italy’s borrowing costs surged to the highest level since 1997 at a note auction. Japan’s currency slid almost half a yen against the dollar in less than a minute before paring losses amid speculation the nation will act to weaken its currency to support exporters.

“In the short term you must be bearish euro given that the sovereign-debt crisis hasn’t been contained,” said Besa Deda, chief economist at St. George Bank Ltd. in Sydney.

The euro fell 0.4 percent to $1.3583 at 7:09 a.m. in London from the close in New York yesterday, when it slid 0.9 percent. The common currency sank as much as 0.5 percent to 104.55 yen, the lowest since Oct. 12, before trading at 104.62 yen. The yen was little changed from yesterday at 77 per dollar after dropping to 77.50.

The ZEW Center for European Economic Research in Mannheim, Germany, will say today its index of investor and analyst expectations, which aims to predict developments six months in advance, declined to minus 52.5 this month from minus 48.3 in October, according to economists surveyed by Bloomberg News. That would be the lowest since November 2008.

“The risk is that we get an even weaker result on the ZEW survey, and that just adds to the poor sentiment over Europe,” Deda said.

Third-quarter growth in the euro area slowed to 1.4 percent year-on-year from 1.6 percent in the previous three-month period, economists said in a separate poll forecast before the European Union releases the data today. France’s economy grew 0.4 percent from the second quarter, when it fell a revised 0.1 percent, the Paris-based statistics office, Insee, said.

“While economic data may pose some risks to the euro, developments in the European peripheral debt market will continue to steer sentiment,” Ray Attrill, head of currency strategy for BNP Paribas SA in New York, wrote in a note today.

Spain is scheduled to auction bills maturing in 12 months and 18 months today, two days before offering bonds due 2022 and ahead of the country’s general election on Nov. 20. France will sell notes on Nov. 17 maturing from 2013 to 2016.

Italy’s Treasury auctioned 3 billion euros of September 2016 notes yesterday, the maximum target. The yield was 6.29 percent, up from 5.32 percent at the previous auction five-year notes and the highest since June 1997.

Ten-year Spanish yields surged 25 basis points, or 0.25 percentage point, to 6.11 percent yesterday, surpassing 6 percent for the first time since the European Central Bank was said to have started buying the nation’s debt on Aug. 8. Yields on Italian notes of similar maturity also jumped 25 basis points to 6.7 percent. Rates on France’s 10-year debt touched a four- month high of 3.51 percent on Nov. 11

The euro has declined 1 percent over the past six months, according to Bloomberg Correlation-Weighted Indexes, which track the currencies of 10 developed nations. The yen has gained 6.6 percent and the dollar has increased 2.9 percent.

The yen tends to strengthen during periods of financial stress because Japan’s export-reliant economy doesn’t need foreign capital to balance its current account -- the broadest measure of trade. The dollar is supported from its status as the world’s reserve currency.

Japan sold yen to weaken it from a postwar record high against the dollar on Oct. 31, marking the nation’s third currency-market intervention this year. The currency has strengthened 1.5 percent since its close that day.

“The market is nervous and easily spooked” about the possibility that Japan may sell yen, said Sue Trinh, a senior strategist at Royal Bank of Canada in Hong Kong. “Naturally the market is going to be on intervention alert.”

The greenback rose against most of its 16 major peers today as Asian stocks followed a decline in U.S. and European equities, spurring demand for haven assets. The MSCI Asia Pacific Index fell 0.9 percent.

New Zealand’s currency declined 0.9 percent to 77.31 U.S. cents. It may weaken toward 73.35 U.S. cents, Australia & New Zealand Banking Group Ltd., said citing trading patterns.

The so-called kiwi’s 50-day moving average fell below the 100-day moving average last month and has stayed under it, forming a so-called death cross that signals the risk of increasing weakness, said Tim Riddell, head of global markets research at ANZ Bank in Singapore.

The franc fell for a second day against the greenback after Swiss central bank Vice Chairman Thomas Jordan said yesterday the franc remains a “very strong currency” and policy makers are ready to take further measures to counter risks to price stability and the economy. He declined to say whether policy makers would raise the franc ceiling from 1.20 versus the euro.

The franc fell 0.4 percent to 91.14 centimes per dollar and traded at 1.2376 per euro from 1.2384 yesterday.

Gains in the dollar were limited amid speculation the Federal Reserve will refrain from reducing liquidity in the economy to accelerate recovery through lower borrowing costs.

U.S. retail sales rose 0.3 percent in October, down from a 1.1 percent increase the previous month, according to a Bloomberg survey of economists before the Commerce Department releases the data today.

Wholesale prices in the U.S. dropped last month for the first time since June, and the cost of living was unchanged from September, separate Bloomberg polls forecast before the government announces the data today and tomorrow.

“We can hardly expect the dollar to be actively bought,” said Daisaku Ueno, Tokyo-based president of Gaitame.com Research Institute Ltd., a unit of Japan’s largest online currency broker. “The U.S. economy hasn’t improved enough to prompt the Fed to unwind monetary easing.”

 

Bloomberg

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