Euro Near 11-Year Low Versus Yen on Spain, Italy Concern

The euro fell for a fifth day against the yen, approaching an 11-year low, amid speculation Europe’s debt crisis is threatening to engulf Spain and Italy.
The 17-nation currency dropped below $1.21 for a second day after Moody’s Investors Service cut its ratings outlook for Germany and the Netherlands yesterday and LCH Clearnet Ltd. raised the extra deposit it demands to trade some Spanish and Italian bonds. The yen rose against most of its major peers as investors sought the safety of Japan’s currency even as the government said it’s ready to combat its strength. Australia’s dollar gained after Chinese manufacturing rose.

 

One euro price signs hang over discounted goods on sale at a "one euro store" in Athens, Greece. 

July 24 (Bloomberg) -- Steven Saywell, head of foreign-exchange strategy for Europe at BNP Paribas SA, discusses the outlook for the euro, Federal Reserve monetary policy and investment strategy for the U.S., Australian and Canadian dollars. He speaks with Linzie Janis on Bloomberg Television's "Countdown." (Source: Bloomberg)

July 23 (Bloomberg) -- David Bloom, chief currency strategist at HSBC Holdings Plc., talks about the outlook for the euro, dollar and Nordic currencies. He speaks with Manus Cranny on Bloomberg Television's "Last Word." (Source: Bloomberg)

July 23 (Bloomberg) -- Carl Weinberg, founder and chief economist at High Frequency Economics, talks about Europe's sovereign debt crisis and the region's banks. Weinberg speaks with Tom Keene and Sara Eisen on Bloomberg Television's "Surveillance." (Source: Bloomberg)

“The euro is going down, the only question is how far and how fast,” said Geoff Kendrick, head of European currency strategy at Nomura International in London. “The Moody’s downgrade adds to the negativity and the timing isn’t particular helpful given what’s happening in Spain.”
The euro dropped 0.2 percent to 94.78 yen at 9:57 a.m. London time after declining to 94.24 yesterday, the lowest level since November 2000. The single currency was little changed at $1.2113 after falling as low as $1.2092. It slid to $1.2067 yesterday, the weakest since June 2010. The yen rose 0.2 percent to 78.22 per dollar.
The euro has slumped 5.5 percent this year, the worst performance among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen is little changed, and the dollar gained 1.9 percent.

Spain Auction

Spain’s borrowing costs increased as it sold 3.05 billion euros of 84- and 175-day bills. The nation auctioned the 84-day securities at a yield of 2.434 percent compared with 2.362 percent on June 26. The 175-day bill was sold at a yield of 3.691 percent, versus 3.237 percent at the previous sale.
Spain’s benchmark 10-year bonds yield rose as high as 7.58 percent today, a euro-era record. The yields on similar maturity Italian bonds climbed to 6.461 percent, the most since Jan. 18.
Moody’s said yesterday the increasing likelihood of collective support for European countries including Spain and Italy is “adversely” affecting the Aaa credit ratings of Germany and the Netherlands.
“This burden will likely fall most heavily on more highly rated member states if the euro area is to be preserved in its current form,” the company said in a statement.
Billionaire hedge-fund manager John Paulson was said to have told clients he sees a 50 percent chance the euro will unravel. An event causing a euro-bloc breakup may happen in three months to two years, Paulson said on a conference call yesterday reviewing second-quarter performance, according to an investor who asked not to be named because the call was private. Paulson, who runs Paulson & Co., said he expected sovereign yield spreads to widen.

Europe Manufacturing

The euro stayed lower against the yen after a report showed the region’s services and manufacturing output shrank for a sixth month in July. A composite index based on a survey of purchasing managers in both industries in the euro area was unchanged at 46.4, the same as in June, Markit Economics said in an initial estimate. A reading below 50 indicates contraction.
Officials from Greece’s troika of international creditors - - the European Commission, European Central Bank and International Monetary Fund -- arrive in Athens today amid doubts the nation will meet the commitments attached to its bailout funding.
The yen advanced against all except two of its 16 major counterparts even as Japan’s Finance Minister Jun Azumi said he is ready to take decisive action on the currency if needed. The yen’s advance doesn’t reflect the nation’s economic fundamentals, he told reporters in Tokyo.
The yen tends to strengthen during periods of financial turmoil because Japan’s current-account surplus makes it less reliant on foreign capital.

‘Gradually Strengthening’

“The Japanese authorities are gradually strengthening verbal rhetoric in an attempt to dampen yen strength in the near term,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “Still, with the euro- zone sovereign debt crisis likely to escalate further, safe- haven demand for the yen should remain firm.”
The Australian dollar rose for the first time in three days after an increase in a private manufacturing gauge for China bolstered the export prospects for the South Pacific nation.
HSBC Holdings Plc and Markit Economics said a preliminary July reading of their manufacturing gauge for China increased to 49.5 from a final 48.2 for June. China is Australia’s biggest trading partner.
“We’re all feeling a bit gloomy at the moment, so the fact that we ended up with a less gloomy number in China is quite encouraging,” said Annette Beacher, Singapore-based head of Asia-Pacific research at TD Securities Inc. “The Aussie has taken some heart from that.”
The Australian dollar rose 0.3 percent to $1.029 after sliding 1.2 percent yesterday.

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