BLBG: Pound Falls to Lowest in Almost Two Months on Dubai Concerns
By Ron Harui
Dec. 9 (Bloomberg) -- The pound weakened to its lowest level in almost two months against the dollar on concern Dubai’s state-controlled companies will have to sell U.K. assets to pay for loan obligations.
The U.K. currency fell versus 15 of its 16 major counterparts after Moody’s Investors Service said yesterday deteriorating public finances in the U.K. and the U.S. may test their Aaa ratings. The yen erased earlier gains on speculation the Bank of Japan will take more credit-easing measures after a report showed the economy grew less than earlier estimated last quarter. Indonesia’s rupiah gained on prospects the fastest economic growth in Asia will lure overseas investors.
“There are concerns that companies in Dubai, which are falling behind on debt payments, may need to sell U.K. property,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank. “Risk aversion is prevailing, so the dollar will probably be bought. The pound will likely be sold.”
The pound declined to $1.6262 as of 1:44 p.m. in Tokyo from $1.6287 in New York yesterday, after earlier falling to $1.6226, the lowest level since Oct. 15. The U.K. currency dropped to 143.81 yen from 144.03 yen, and fell to 90.56 pence per euro from 90.27 pence.
The yen traded at 130.25 per euro from 130.03 yesterday, after earlier climbing to 129.66, the strongest since Dec. 1. Japan’s currency was at 88.46 per dollar from 88.43. The euro bought $1.4724 from $1.4704.
Dubai Companies
The U.K. currency fell for a fifth day against the dollar as documents obtained by Bloomberg showed Nakheel PJSC, the Dubai World-owned property developer seeking to renegotiate debt, had a first-half loss of 13.4 billion dirhams ($3.65 billion) as revenue fell and it wrote down the value of land and property.
On Nov. 25, the government said it was seeking a “standstill” agreement on Dubai World’s debt. Moody’s yesterday slashed the credit ratings for six Dubai government- related firms, saying “no meaningful” support should be assumed for companies if the government hasn’t guaranteed it.
Moody’s said yesterday the U.K. and the U.S. have “resilient” Aaa ratings, as opposed to the “resistant” top ratings of Canada, Germany and France. Moody’s added that its top debt ratings on the U.S. and the U.K. may “test the Aaa boundaries.”
Japan’s Economy
The yen reversed an earlier advance on speculation the BOJ will expand its credit-easing measures to support the nation’s faltering recovery.
Japan’s gross domestic product rose at an annual 1.3 percent pace in the third quarter, slower than the 4.8 percent reported in preliminary figures last month, the Cabinet Office said today in Tokyo. The median estimate of economists surveyed was for 2.8 percent growth.
“The economic rebound still isn’t that strong,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “Given these worries, the central bank may take more policy action. This would likely be negative for the yen.”
Japanese Prime Minister Yukio Hatoyama unveiled a 7.2 trillion yen ($81 billion) stimulus package yesterday and the Bank of Japan last week announced a 10 trillion yen credit program to revive the economy.
Credit Ratings
Gains in the euro were tempered on speculation credit ratings of more European nations will be cut after Greece’s debt ranking was lowered by Fitch Ratings.
The European Commission is ready to help Greece get to grips with its budget deficit, the European Union’s Economic and Monetary Affairs Commissioner Joaquin Almunia said in a statement yesterday. He didn’t specify what form any assistance may take.
“European Union and eurozone policy makers continue to focus their attention on Greece following yesterday’s downgrade by Fitch,” said Gareth Berry, a currency strategist at UBS AG in Singapore. “For instance, EU’s Almunia has said a difficult situation in one eurozone member state is a matter of common concern for the eurozone as a whole. We continue to target the euro at $1.45 in one month.”
Fitch yesterday lowered Greece’s credit rating one step to BBB+, the third-lowest investment grade, and said the outlook for the rating is negative. Standard & Poor’s on Dec. 7 put Greece’s A- rating on watch for a possible downgrade, and revised the outlook on Portugal’s rating to negative from stable.
Indonesia’s rupiah strengthened after the central bank said yesterday the nation’s gross domestic product may increase as much as 4.5 percent this year and up to 5.5 percent in 2010.
“Longer term, we still expect Asian currencies including the rupiah to rise given the growth story,” said Thomas Harr, a senior foreign-exchange strategist at Standard Chartered Plc in Singapore. “There’s definitely some risk aversion. This may go on for a while but it will be modest as emerging Asia is still a sweet spot for investors.”
The rupiah rose 0.4 percent to 9,470 per dollar, according to data compiled by Bloomberg. It is the best-performing currency in Asia this year, gaining 15 percent.
To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net.
