By Candice Zachariahs and Masaki Kondo - Nov 15, 2011 10:28 AM GMT+0700
The euro held losses before a report forecast to show German investor confidence fell to a three-year low as Europe’s debt crisis threatens to curb economic growth.
The 17-nation currency maintained a drop versus the yen from yesterday as Spain prepares to sell up to 4 billion euros ($5.5 billion) of bonds on Nov. 17 after Italy’s borrowing costs surged to the highest level since 1997 at a note auction. Japan’s currency slid almost half a yen against the dollar in less than a minute, before paring losses, amid speculation the nation will act to weaken its currency to support exporters.
“A poor reading is expected for November, but probably the risk is that we get an even weaker result on the ZEW survey and that just adds to the poor sentiment over Europe,” said Besa Deda, chief economist at St. George Bank Ltd. in Sydney. “In the short term you must be bearish euro given that the sovereign-debt crisis hasn’t been contained.”
The euro was little changed at $1.3621 at 12:23 p.m. in Tokyo from New York yesterday, when it slid 0.9 percent. The common currency fetched 105.04 yen from 105.07. The yen was at 77.11 per dollar from 77.07, after sliding to as low as 77.50.
“The market is nervous and easily spooked” about the possibility that Japan may sell yen, said Sue Trinh, a senior strategist at Royal Bank of Canada in Hong Kong. “Naturally, the market is going to be on intervention alert.”
Slowing Growth
The ZEW Center for European Economic Research in Mannheim, Germany, will say today its index of investor and analyst expectations, which aims to predict developments six months in advance, declined to minus 52.5 this month from minus 48.3 in October, according to economists surveyed by Bloomberg News. That would be the lowest since November 2008.
Third-quarter growth in the euro area slowed to 1.4 percent year-on-year from 1.6 percent in the previous three-month period, economists in a separate poll forecast before the European Union releases the data today. France’s economy expanded 1.6 percent from the same period a year earlier, compared with 1.7 percent in the second quarter, economists projected.
“While economic data may pose some risks to the euro, developments in the European peripheral debt market will continue to steer sentiment,” Ray Attrill, head of currency strategy for BNP Paribas SA in New York, wrote in a note today.
Spain is scheduled to auction bills maturing in 12 months and 18 months today, two days before offering bonds due 2022. France will sell notes on Nov. 17 maturing from 2013 to 2016.
Italy’s Treasury auctioned 3 billion euros of September 2016 notes yesterday, the maximum target. The yield was 6.29 percent, up from 5.32 percent at the previous auction and the highest since June 1997.
Bond Yields
Ten-year Spanish yields surged 25 basis points, or 0.25 percentage point, to 6.11 percent yesterday, surpassing 6 percent for the first time since the European Central Bank was said to have started buying the nation’s debt on Aug. 8. Yields on Italian notes of similar maturity also jumped 25 basis points to 6.7 percent.
Rates on France’s 10-year debt touched a four-month high of 3.51 percent on Nov. 11
The euro has declined 1 percent over the past six months, according to Bloomberg Correlation-Weighted Indexes, which track the currencies of 10 developed nations. The dollar has gained 2.7 percent.
Australia’s dollar erased an earlier decline after the nation’s central bank said in minutes of its Nov. 1 meeting that there was a case for keeping interest rates unchanged even though policy makers lowered the benchmark.
The so-called Aussie dollar rose to $1.0212 from $1.0197, the level before the Reserve Bank released its meeting minutes, and $1.0205 yesterday.
Australia’s Policy
Policy makers decided on “a modest easing” of monetary policy after weighing slower inflation and increased global risks against surging mining investment, the minutes showed. The RBA cut the target rate by a quarter percentage point to 4.5 percent, the first reduction in 2 1/2 years.
“There’s no sign that there’s an urgent need to cut rates again, so I think we might see that priced out a little bit and that’s why the Aussie has jumped,” said Roland Randall, an economist at Toronto-Dominion Bank’s TD Securities unit in Singapore.
IntercontinentalExchange Inc.’s Dollar Index, used to track the greenback versus the currencies of six major U.S. trading partners, snapped a gain from yesterday amid speculation the Federal Reserve will refrain from reducing liquidity in the economy to accelerate recovery through lower borrowing costs.
Fed Easing
U.S. retail sales rose 0.3 percent in October, down from a 1.1 percent increase the previous month, according to a Bloomberg survey of economists before the Commerce Department releases the data today.
Wholesale prices in the U.S. dropped last month for the first time since June, and the cost of living was unchanged from September, separate Bloomberg polls forecast before the government announces the data today and tomorrow.
“We can hardly expect the dollar to be actively bought,” said Daisaku Ueno, Tokyo-based president of Gaitame.com Research Institute Ltd., a unit of Japan’s largest online currency broker. “The U.S. economy hasn’t improved enough to prompt the Fed to unwind monetary easing.”
The Dollar Index was little changed at 77.534 after a 0.8 percent climb yesterday. The dollar rose 0.2 percent to 91.01 Swiss centimes.
To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net
To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net
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