Euro Falls Before Germany Vote on Spanish Aid; Yen Gains

The euro weakened versus the dollar and yen before German lawmakers vote tomorrow on aid to recapitalize Spanish banks.
The dollar snapped a one-day advance against the yen on speculation the Federal Reserve’s Beige Book assessment of U.S. economic conditions due today may add to recent signs of weakness and before Chairman Ben S. Bernanke testifies before Congress for a second day. Japan’s currency gained versus all but one of its 16 major peers as declines in Asian stocks spurred demand for safer assets.

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Ben S. Bernanke, chairman of the U.S. Federal Reserve. Photographer: Andrew Harrer/Bloomberg

“A worsening of the debt crisis and economic fundamentals is in store for the euro,” said Kengo Suzuki, a foreign- exchange strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank by market value. “I think the currency is still on a downtrend for the medium- to long-term.”
The euro lost 0.2 percent to $1.2270 as of 6:43 a.m. in London after climbing to $1.2317 yesterday, the strongest level since July 10. It dropped 0.3 percent to 96.88 yen. The dollar fell 0.1 percent to 78.97 yen after gaining 0.2 percent to 79.06 yesterday in New York.
The MSCI Asia Pacific Index (MXAP) of shares retreated 0.7 percent, after rising as much as 0.4 percent.

German Vote

Germany’s Finance Ministry formally asked lawmakers in a letter dated July 16 to support Spanish bank recapitalizations of as much as 100 billion euros ($123 billion) by the European Financial Stability Facility and the transfer of the program to the future European Stability Mechanism.
Chancellor Angela Merkel will get “the majority she needs” at a vote tomorrow, Steffen Seibert, her spokesman, told reporters at a regular government press conference July 13.
The Fed is due to release its Beige Book survey of business conditions in 12 U.S. districts. The U.S. economy was described as growing at a “moderate pace” pace in the central bank’s June survey.
A report from the Commerce Department today may show housing starts climbed to a 745,000 annual pace last month from 708,000 in May, according to the median estimate in a Bloomberg News survey of economists. First-time claims for jobless benefits probably increased to 365,000 in the week ended July 14 from 350,000 in the previous period, a separate poll showed before figures from the Labor Department tomorrow.
Central bank policy makers “are looking for ways to address the weakness in the economy should more action be needed to promote a sustained recovery in the labor market,” Bernanke said in response to questions during yesterday’s testimony in Washington. He will appear before a House of Representatives committee today. The Federal Open Market Committee is scheduled to start a two-day policy meeting on July 31.

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