BS: Euro Declines as European Officials Split Over Fund Increase
Dec. 6 (Bloomberg) -- The euro fell against most of its major counterparts as European officials voiced divisions over the steps needed to stop the sovereign-debt crisis.
The euro slid from a two-week high against the dollar ahead of a meeting of policy makers in Brussels. Belgian Finance Minister Didier Reynders said a bailout fund might be expanded, breaking ranks with German Chancellor Angela Merkel and France’s Nicolas Sarkozy. The dollar rallied as Federal Reserve Chairman Ben S. Bernanke said renewed recession “doesn’t seem likely.”
“I like playing the idea that the euro stays weak,” said Paul Robson, a senior foreign exchange strategist at Royal Bank of Scotland Group Plc in London. With regards to the EU meetings, “it will be interesting to see what comes out of there and how much agreement, or more importantly how much disagreement, there is about crisis management going forward.”
The euro dropped 0.6 percent against the dollar to $1.3332 at 8:19 a.m. in London. It rose to $1.3414 last week, the highest since Nov. 22. The common currency slid 0.2 percent to 110.47 yen from 110.73 on Dec. 3. It touched 111.19 yen on Dec. 2, the strongest since Nov. 29.
Reynders, whose country holds the rotating European Union presidency until the end of this year, told reporters on Dec. 4 that a 750 billion-euro ($1 trillion) bailout fund could be increased. He said European finance ministers meeting in Brussels today will discuss the outlook for Portugal, which is struggling to quash speculation it will need a bailout.
FT Letter
“If we decide this in the next weeks or months, why not apply it immediately to the current facility?” he said Dec. 4.
Sarkozy and Merkel last month rejected expanding the fund. Today’s meeting also comes after Luxembourg Finance Minister Jean-Claude Juncker and Italian counterpart Giulio Tremonti wrote a letter to the Financial Times calling for the introduction of a joint European government bond.
“E-Bonds” would be sold by a European Debt Agency, which could be created as early as this month and finance as much as 50 percent of the issuances by EU members to create a deep market, they said. A switch would also be offered between E- Bonds and current government bonds.
German Deputy Finance Minister Joerg Asmussen on Dec. 3 rejected such a move because it wouldn’t encourage countries to fix their finances.
Bearish Strategists
The most accurate foreign-exchange strategists say the euro’s worst annual performance since 2005 will extend into next year as the region’s sovereign-debt crisis saps economic growth.
Standard Chartered Plc, the top overall forecaster in the six quarters ended Sept. 30 based on data compiled by Bloomberg, predicted the euro may weaken to less than $1.20 by mid-2011. Westpac Banking Corp., the second most accurate, is “bearish in the short term,” and No. 3 Wells Fargo & Co. cut its outlook at the end of last week.
The dollar rose to 82.85 yen from 82.53 yen on Dec. 3, the lowest since Nov. 15. The euro has fallen 9.2 percent this year, while the dollar is down 1.9 percent, according to Bloomberg Correlation-Weighted Currency Indexes. The yen has advanced 11.5 percent.
--With assistance from Anchalee Worrachate in London, Monami Yui in Tokyo and Simone Meier in Zurich. Editors: Keith Campbell, Matthew Brown.
To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net.
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.
