The euro slid to $1.3706 as of 6:31 a.m. in Singapore from $1.3796 in New York on Sept. 16, when it fell 0.6 percent. It Photographer: Chris Ratcliffe/Bloomberg
Sept. 19 (Bloomberg) -- Ron William, a technical strategist at MIG Bank, talks about the outlook for gold and currencies. William speaks in Hong Kong with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)
The euro dropped against the dollar and yen for a second day after European officials failed to offer a plan to halt the region’s debt crisis and as Greece struggles to avoid default.
The 17-nation currency slid against most of its 16 major peers before European Union and International Monetary Fund officials speak today with Greek Finance Minister Evangelos Venizelos to judge whether his government is eligible for its next aid payment. The dollar rose against the majority of its most-traded counterparts as Asian stocks slid and investors bought the safest assets on concern Europe’s debt crisis will weigh on global growth.
“The failure of the European finance ministers to come up with anything concrete is a huge disappointment for the markets,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington. “The euro is coming off and we’d expect that to carry on.”
The euro slid 0.9 percent to $1.3666 as of 11:04 a.m. in Singapore from $1.3796 in New York on Sept. 16. It declined to 105.06 yen from 105.95 last week. The dollar rose 0.1 percent to 76.88 yen.
IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against currencies including the euro, yen and pound, advanced 0.7 percent to 77.139.
The MSCI Asia-Pacific excluding Japan Index of shares slumped 1.9 percent. Markets in Japan are closed today for a public holiday.
Greek Review
The IMF and EU are reviewing whether Greece can meet the conditions of its rescue loans and is eligible for the next payment due in October and for a second rescue package. They suspended their assessment earlier this month after discovering a hole in the budget.
The crisis which began in Greece has spread to larger European nations including Spain and Italy, where government bond yields rose for a fourth-straight week in the five days ended Sept. 16.
German Finance Minister Wolfgang Schaeuble and Bundesbank President Jens Weidmann rejected using the European Central Bank to boost the euro-area rescue fund’s firepower, rebuffing a suggestion by U.S. Treasury Secretary Timothy Geithner.
“We don’t think that real economic and social problems can be solved by means of monetary policy,” Schaeuble told reporters on Sept. 17. “That has never been the European model and it won’t be.”
Europe’s finance chiefs, who wrapped up two days of talks in Wroclaw, Poland, on Sept. 17 also said that the debt burden leaves no room for tax cuts or extra spending to spur an economy on the brink of stagnation.
Investor Confidence
German investor confidence dropped in September on concern Europe’s debt crises will curb economic growth, a report tomorrow will show, according to the median estimate of economists surveyed by Bloomberg News. The ZEW Center for European Economic Research in Mannheim will probably say that its index of investor and analyst expectations, which aims to predict developments six months in advance, plunged to minus 45 from minus 37.6 in August. That would be the lowest since December 2008.
Chancellor Angela Merkel’s party was defeated in a Berlin state election and her coalition ally lost all its seats after turning skepticism over euro-area bailouts into a campaign theme, stoking government infighting over the debt crisis.
The Social Democrats, the main opposition party nationally, extended their 10-year rule in the German capital after beating Merkel’s Christian Democrats into second place in yesterday’s election. Merkel’s Free Democratic coalition partner, known as the liberals, crashed out of a regional assembly for the fifth time this year, while the Pirate Party won its first-ever seats.
Euro Shorts
Futures traders increased bets that the euro will decline against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 54,459 on Sept. 13, the most since July 2010.
The dollar rallied before the Federal Open Market Committee gathers tomorrow for a two-day meeting.
The committee may decide to replace some of the short-term Treasury securities in the Federal Reserve’s $1.65 trillion portfolio with long-term debt in a bid to lower rates on everything from mortgages to car loans, according to economists at Wells Fargo & Co., Barclays Capital Inc. and Goldman Sachs Group Inc. Some analysts dub the maneuver “Operation Twist” because it would bend long-term yields lower.
Dollar ‘Outperforming’
“The FOMC are backing up everything they’ve said on a month-by-month basis,” said Kurt Magnus, executive director of currency sales in Sydney at Nomura Holdings Inc., Japan’s biggest brokerage. “They’re not going to let the market down. The dollar will be outperforming the euro while Europe’s still in turmoil.”
The dollar also held on to gains as investors flocked to the currency as a refuge amid a decline in Asian stocks. The greenback tends to appreciate during economic and financial turmoil because it benefits as the world’s reserve currency.
“With the yen and the Swiss franc kind of closed off because of central-bank intervention, that leaves the U.S. dollar to be the premium safe haven for now,” said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia, the nation’s biggest lender. Risk aversion will “keep the U.S. dollar well-bid and put downward pressure on equity markets globally,” he said.
Yen Measures
The yen extended gains against the euro into a second day, even as Japan’s government indicated it may act to curb currency appreciation.
Japan may outline measures to counter the strong yen as early as tomorrow, Economic Policy Minister Motohisa Furukawa suggested in remarks yesterday, Kyodo News reported. The package will be aimed at reducing the negative impact of the currency’s gains on domestic businesses, the report said.
The yen has appreciated 6.9 percent in the past three months, the best performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar, the third best, has gained 2.2 percent.
To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net
To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net
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