BLBG: Euro Declines to One-Week Low on Renewed Financial Concerns
By Yoshiaki Nohara and Ron Harui
Dec. 30 (Bloomberg) -- The euro fell to a one-week low against the dollar on speculation some of the countries sharing the European currency will have their credit ratings downgraded.
The euro dropped against 11 of its 16 major counterparts after the Wall Street Journal reported the European Commission said that half of its 16 nations have public debt approaching unsustainable levels. The yen dropped to a two-month low versus the dollar as Reuters reported that Standard & Poor’s said Japan’s AA credit rating could be threatened if policies fail to stabilize and gradually reduce the nation’s huge debt burden.
“I don’t think this will be the last bad news” about Europe, said Norifumi Yoshida, vice president of the trading section at Mizuho Corporate Bank Ltd. in Singapore. “The region as a whole may look OK, but some nations in the area are struggling.”
The euro fell to $1.4326 at 5:41 a.m. in London from $1.4354 in New York yesterday. It earlier touched $1.4307, the lowest since Dec. 23. The yen fell to 92.15 per dollar from 92.00 and touched 92.26, the lowest level since Oct. 27. The euro was at 132.01 yen from 132.05 yen.
The dollar has appreciated 4.7 percent versus the euro this month, trimming its 2009 decline to 2.5 percent. The greenback has fallen 30 percent against the euro this decade.
Credit Ratings
Europe’s currency slid as concern that Greece wasn’t doing enough to address its worsening finances spurred Standard & Poor’s, Moody’s Investors Service and Fitch Ratings to lower the nation’s creditworthiness this month.
S&P also reduced its outlook on Spain’s rating to “negative” from “stable,” saying the country will experience a “more pronounced and persistent deterioration” in its budget.
S&P is focusing on Japan’s medium-term fiscal trajectory and the feasibility of the government’s policy for fiscal consolidation, Takahira Ogawa, director for sovereign ratings at S&P in Singapore, said on Dec. 15. The deteriorating trend for Japan’s credit quality doesn’t warrant a change in the nation’s rating outlook or a downgrade, he said.
The dollar gained before a report economists said will show U.S. manufacturing expanded, backing the case the Federal Reserve will withdraw stimulus measures.
“Ongoing gains in the dollar are based on U.S. economic fundamentals and the Fed’s outlook,” said Daisaku Ueno, president at Gaitame.Com Research Institute Ltd. in Tokyo, a unit of Japan’s largest currency margin company. “It’s not that the Fed will raise rates soon, but it’s preparing tools to reduce an oversupply of dollars toward an exit. The dollar will be bought as long as this view remains intact.”
Recovery Signs
The Institute for Supply Management’s U.S. manufacturing index gained to 54.0 in December from 53.6 in November, according to the median estimate of economists in a Bloomberg News survey before the Tempe, Arizona-based Institute for Supply Management reports the data on Jan. 4. Readings above 50 signal expansion.
The dollar also rose as the yield premium offered by 10- year Treasury notes over similar-maturity Japanese bonds was 2.49 percentage points yesterday. It reached 2.53 percentage points on Dec. 24, the highest level since December 2007 based on closing prices, making U.S. debt more appealing than Japan’s securities.
“The dollar continues to be bought back as Treasury yields hold at high levels,” said Toshihiko Sakai, head of trading for foreign exchange and financial products at Mitsubishi UFJ Trust & Banking Corp. in Tokyo. “Outlooks between the Fed and the BOJ are diverging, boosting demand for the dollar-yen.”
Dubai Banks
Losses in the yen were pared on concerns that the credit ratings of Dubai banks face downgrades, spurring demand for Japan’s currency as a refuge.
Moody’s Investors Service yesterday lowered the long-term deposit ratings of Abu Dhabi Commercial Bank to A1 from Aa3 and said the outlook is negative. Moody’s actions came with the “potential continued deterioration in Dubai’s operating environment, including the bank’s exposure to ongoing restructuring” of Dubai World companies’ debt.
“The downgrades may spark worries over the credit quality of other financial institutions in Dubai,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank. “This could fuel risk aversion, which may lead to buying of the yen and the dollar.”
Dubai World, the state-owned holding company seeking to change terms on about $22 billion of debt, will present a standstill agreement to lenders in early January, three bankers who attended a presentation on the subject on Dec. 21 said.
To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.
