BLBG: Euro Falls Most in Two Weeks on Concern Debt Crisis to Hamper Fund Raising
The euro fell by the most in two weeks against the dollar amid concern the region’s lingering debt crisis will hamper efforts by governments and banks to raise funds.
The common currency weakened versus 15 of its 16 major counterparts before France auctions 8.5 billion euros ($11.3 billion) of debt today. The yen rose toward a three-month high versus the euro after a Chinese report showed manufacturing expanded at a slower-than-forecast pace in December, supporting demand for safer assets. Taiwan’s dollar approached a 13-year high before a report this week that economists predict will show inflation accelerated.
“The tensions in euro-zone debt and peripheral issues remain unresolved and that’s brought a dose of reality back to the euro-dollar,” said Mitul Kotecha, head of global foreign- exchange strategy at Credit Agricole CIB in Hong Kong. “The bias is probably going to be lower this week.”
The euro slid 0.7 percent to $1.3293 as of 12:30 p.m. in Singapore from $1.3384 in New York on Dec. 31, when it touched $1.3425, the highest level since Dec. 14. The shared currency is poised for its sharpest daily decline since Dec. 15. The yen climbed to 108.01 per euro from 108.47, nearing the 107.61 level it reached on Dec. 30 that was the strongest since Sept. 14.
The dollar rose to 81.25 yen from 81.12 yen in New York last week. Financial markets in Australia, New Zealand and Japan are closed today for a public holiday.
Europe’s Debt Crisis
The euro had its largest loss versus the dollar in five years in 2010 as concern about the European debt crisis spurred demand for the greenback as a refuge. The region added Estonia as the 17th member nation on Jan. 1. France will sell 84-day, 161-day and 343-day bills today.
“The euro is the one currency we see falling against the dollar in the first quarter,” said Robert Ryan, a currency strategist at BNP Paribas SA in Singapore. “It’s the inability of the European institutions to get ahead of the curve. The real efforts to address the crisis have only come on the eve of utter collapse.”
The likelihood the euro area will exist in its current structure in a decade is 20 percent as governments fail to take sufficient measures to tackle economic imbalances, the Centre for Economics and Business Research said last week.
The euro region will have another debt crisis by this spring, when Spain and Italy have to refinance more than 400 billion euros of bonds, CEBR Chief Executive Officer Douglas McWilliams said in an e-mailed note on Dec. 31.
The single currency will weaken to $1.27 by the end of March, according to BNP’s research note dated Dec. 31. The median prediction of 37 analysts surveyed by Bloomberg News is for the euro to decline to $1.30 by the end of this quarter.
China’s Manufacturing
The yen gained for the first time in three days versus the euro after China’s logistics federation and statistics bureau said on Jan. 1 its purchasing managers’ index fell to 53.9 in December from 55.2 in November. A separate Dec. 30 report from HSBC Holdings Plc and Markit Economics showed a purchasing managers’ index for China declined to 54.4 in December from 55.3 in November.
“A slowing Chinese economy would be a worry for Asia overall,” said Norifumi Yoshida, vice president of the trading section in Singapore at Mizuho Corporate Bank Ltd., a unit of Japan’s second-largest banking group. “The PMI data seem to be causing some risk aversion. The bias would probably be for the dollar and the yen to be bought.”
Taiwan’s Dollar
Taiwan’s dollar extended last year’s 5.5 percent advance, the most since 2004, into this year as economists surveyed by Bloomberg said consumer prices climbed 1.8 percent in December, the most in 10 months, before the Jan. 5 report.
Central bank policy makers in Taiwan boosted the discount rate on 10-day loans by 12.5 basis points to 1.625 percent on Dec. 30, the third increase of 2010.
“Higher inflation will continue to add pressure on the central bank to raise rates,” said George Pu, a fixed-income trader at President Securities Corp. in Taipei. The Taiwan dollar “will stay strong in the coming quarter.”
Taiwan’s dollar rose to NT$29.118 against its U.S. counterpart from NT$30.368, after touching NT$29.080 on Dec. 30, the strongest since October 1997.
To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
