BLBG: Euro Falls Against Dollar as Irish Deal Fails to Stem Concern Over Crisis
The euro fell to the lowest level in more than two months against the dollar as an 85 billion-euro ($112 billion) aid package for Ireland failed to stem concern that Europe’s sovereign-debt crisis will deepen.
The shared currency slipped versus all of its 16 major counterparts. Finance chiefs ended talks in Brussels yesterday, agreeing a future crisis-management system won’t automatically cut the value of bond holdings as the Irish package was secured. Irish opposition parties criticized the terms of the bailout led by the European Union and International Monetary Fund, and the cost of insuring debt from Spain and Portugal soared.
“The euro is just following the same script over and over here; the market just refuses to accept the EU stabilization mechanism,” said Boris Schlossberg, director of research at online currency trader GFT Forex in New York. “The currency markets are being completely driven by the credit markets, and until the credit markets in Europe show any bit of stabilization it’s hard to imagine the euro finding a significant bottom.”
The 16-nation currency slid 0.9 percent to $1.3117 at 8:59 a.m. in New York, and fell earlier to $1.3114, the weakest since Sept. 21. The euro slid 0.6 percent against the yen to 110.68, from 111.37 on Nov. 26. The Japanese currency depreciated 0.2 percent to 84.23 per dollar, compared with 84.10 on Nov. 26.
Credit Default Swaps
The cost of insuring debt of Spain and Portugal reached record highs, according to CMA. Prices for credit-default swaps on Portugal jumped 40 basis points, or 0.40 percentage point, to 542, and those on Spain climbed 22.25 to 336, according to CMA.
Ireland said it will pay average annual interest of 5.8 percent on the aid package, which breaks down into 45 billion euros from European governments, 22.5 billion euros from the International Monetary Fund and 17.5 billion euros from Ireland’s cash reserves and national pension fund.
European finance leaders also backed a Franco-German compromise on post-2013 sovereign bailouts that waters down calls by German Chancellor Angela Merkel for investors to assume losses and share the costs with taxpayers.
Irish opposition politicians reacted angrily to the rescue package. Michael Noonan, finance spokesman for the largest opposition party, Fine Gael, said the interest rate was “far too high” and that the “government was cleaned out in the negotiations.”
The deal for Ireland shifts attention to Portugal, which last week passed the deepest spending cuts in more than three decades with the goal of getting back under the EU’s deficit limits by 2012.
Monthly Gain
The dollar is poised for its first monthly gain versus the yen since April as concern that military action on the Korean peninsula will escalate underpinned demand for the relative safety of the U.S. currency.
South Korea has doubled its artillery strength on the disputed island of Yeonpyeong, which was hit by shells fired from North Korea last week, and asked journalists to leave, Yonhap News reported. The North Koreans have installed surface- to-air missiles in the area, it said.
The South Korean won rose against all of its 16 major counterparts, rebounding from a near an 11-week low versus the dollar, as investors speculated exporters took advantage of a more favorable exchange rate to repatriate income.
The won gained 0.6 percent to 1,152.46 per dollar, the biggest gain in a week. It touched 1,172.50 on Nov. 24, the weakest level since Sept. 9.
The Dollar Index, which tracks the greenback against the currencies of 6 major U.S. trading partners including the euro and the yen, rose as much as 0.5 percent to touch 80.793, the highest level since Sept. 21.
‘Currency of Choice’
“The dollar is going to be the currency of choice as risk appetite remains somewhat under pressure as issues with Korea remain front and center,” said Jeremy Stretch, executive director of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London.
The Australian dollar touched the lowest level in almost eight weeks against the greenback as concern military action on the Korean peninsula will escalate.
The Aussie fell 0.2 percent to 96.23 U.S. cents. It reached 95.85, the weakest since Oct. 5.
The Swiss franc rose against 14 of its 16 most-traded counterparts as investors sought a refuge amid concern the Irish debt crisis will spread.
The franc strengthened 0.7 percent to 1.3182 per euro, from 1.3278 on Nov. 26. It appreciated 0.2 percent to 1.0013 per dollar, from 1.0036 franc on Nov. 26.
The franc has gained 7.9 percent in a measure of the currencies of 10 developed nations in the past six months, according to Bloomberg Correlation-Weighted Currency Indexes, making it the best performer during that period.
To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; Lucy Meakin in London at lmeakin1@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
