Euro Weakens as Reports Signal Region’s Debt Crisis Is Weighing on Growth

By Lukanyo Mnyanda and Kristine Aquino - Nov 23, 2011 6:46 PM GMT+0700

The euro fell to a six-week low against the dollar as reports added to signs that Europe’s failure to resolve its debt crisis is weighing on economic growth and Germany received insufficient bids at a debt auction.

The 17-nation euro slid versus 13 of its 16 major peers as London-based Markit Economics said a gauge of European services and manufacturing output shrank for a third month. The pound fell for a third day against the dollar after the Bank of England’s minutes showed some policy makers said more stimulus “might well become warranted.” Sweden’s krona declined as central bank Deputy Governor Barbro Wickman-Parak said policy makers may cut interest rates if Europe’s debt crisis persists.

“There are a lot of reasons to be negative about the euro,” said Ankita Dudani, a currency strategist at Royal Bank of Scotland Group Plc in London. “The whole of the euro zone is getting entrapped in the lack of growth, and the cost of financing is so high. They are being hit from both sides.”

Europe’s shared currency slipped 0.9 percent to $1.3389 at 11:17 a.m. London time, after sliding to $1.3374, the least since Oct. 10. The euro fell 0.6 percent to 103.31 yen. The dollar was 0.3 percent higher at 77.16 yen.

The Stoxx Europe 600 Index of shares declined for a fourth day, losing as much as 1 percent. Futures on the Standard and Poor’s 500 Index were 0.7 percent lower.

Manufacturing, Services

A composite index based on a survey of purchasing managers in manufacturing and services rose to 47.2 from 46.5 in October, Markit said in an initial estimate today, suggesting the sovereign-debt crisis is starting to affect economic growth in the region’s core nations. Economists forecast a drop to 46.1, according to the median of 17 estimates in a Bloomberg News survey.

European industrial orders declined the most in almost three years in September, led by Germany and France, data from the European Union’s statistics office in Luxembourg showed.

The pound weakened 0.4 percent to $1.5577, after being as low as $1.5554, the least since Oct. 12.

Bank of England policy makers were unanimous in their decision at this month’s rate-setting meeting to maintain the target for asset purchases at 275 billion pounds, after increasing it by 75 billion pounds in October, the minutes showed today.

“Some members noted that the balance of risks to inflation” in the bank’s new forecasts “meant that a further expansion of the asset-purchase program might well become warranted in due course,” the central bank said.

German Auction

Investors bid 3.889 billion euros at Germany’s offering of 6 billion euros of 10-year bunds, according to data from the Bundesbank, prompting investors to question the status of the securities as a haven from the euro area’s debt crisis. The securities were sold at a yield of 1.98 percent.

“I cannot recall a worse auction,” Marc Ostwald, a fixed- income strategist at Monument Securities Ltd. in London, wrote in an e-mail. “If Germany can only manage this sort of participation, what hope for the rest?”

Sweden’s krona fell for a third consecutive day, losing 0.8 percent to 6.8836 against the dollar and was little changed at 9.2191 per euro.

“What would prompt us to adjust rates down? That would be if we get a prolonged financial crisis,” Wickman-Parak said yesterday at a seminar in Stockholm. Riksbank Governor Stefan Ingves said Nov. 10 the bank is ready to do what’s necessary to ensure stability as the largest Nordic economy is “highly affected” by the turmoil in Europe.

Australia’s dollar declined against all of its 16 major peers as a report signaled China’s manufacturing will shrink amid a faltering global economy.

The HSBC Flash Manufacturing PMI for China, Australia’s biggest trading partner, fell to 48 this month, predicting the biggest contraction since March 2009. That compares with a final reading of 51 in October.

The so-called Aussie dropped 1 percent to 97.38 U.S. cents and was 0.7 percent weaker at 75.17 yen. New Zealand’s dollar slid to 74.23 cents against its U.S. counterpart and was 0.4 percent lower at 57.29 yen.

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net