By Lukanyo Mnyanda - Nov 25, 2011 7:40 PM GMT+0700
The euro declined to a seven-week low against the dollar as French consumer confidence dropped to the least since 2009 and Italian borrowing costs increased at a sale of six-month bills.
The shared currency extended a third weekly drop versus the yen after European Union Economic and Monetary Affairs Commissioner Olli Rehn said contagion was likely spreading to the core nations. The dollar rose versus all its major peers as stock losses spurred demand for safer assets. Sweden’s krona fell as regulators told the nation’s largest banks to target tougher capital standards.
“It looks a bit grim for the euro,” said Niels Christensen, chief currency strategist at Nordea Bank AB in Copenhagen. “There are very nervous European bond markets. We have a negative euro environment and we have global risk aversion that’s positive for the dollar.”
The euro fell 0.8 percent to $1.3244 at 7:36 a.m. in New York, after dropping to $1.3226, the weakest since Oct. 4. It has fallen 2.1 percent against the dollar this week. The shared currency lost 0.3 percent to 102.60 yen, having depreciated 1.4 percent this week. The dollar gained 0.4 percent to 77.46 yen.
An index (SXXP) of consumer sentiment in France, the euro area’s second-largest economy, slid to 79 this month from 82 in October, according to Insee, the national statistics office. That was the lowest since February 2009. Rehn, speaking in Rome today, said Italy faces “formidable challenges.”
Italy Auction
Italy sold 8 billion euros ($10.6 billion) of 183-day bills at a rate of 6.504 percent, the highest since August 1997, and up from 3.535 percent at the prior auction on Oct. 26. Demand dropped to 1.47 times the amount on offer from 1.57 times last month.
“Risk sentiment is still pretty poor as there doesn’t seem to be one clear solution that will be swift for Europe,” said Besa Deda, chief economist at St. George Bank Ltd. in Sydney. “The U.S. dollar would get some support in this environment particularly, as the euro is out of favor.”
The Dollar Index (DXY) gained for a third day as stock declines boosted demand for safer assets.
The Stoxx Europe 600 Index dropped 0.4 percent, and the U.K.’s FTSE 100 Index slid for a 10th day, losing 0.3 percent. Futures on the Standard and Poor’s 500 Index fell 0.6 percent.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the U.S. currency against those of six major U.S. trading partners, advanced 0.5 percent to 79.497.
Currency moves may be exaggerated by smaller than usual volumes as many traders probably took holidays today after U.S. Thanksgiving yesterday, Nordea Bank’s Christensen said.
Weekly Gain
The dollar was boosted this week as Germany failed to sell its maximum amount at a bund auction and German Chancellor Angela Merkel ruled out the issuance of joint euro-area bonds.
“The key events this week were the poor German bund auction and the subsequent press conference yesterday,” said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp. in London. “On the euro bond story, we know Germany’s view on this and Merkel made that very clear yesterday.”
The krona weakened for a fifth day as the Riksbank, the Financial Supervisory Authority and Finance Ministry said they want the country’s largest banks to target common equity Tier 1 capital of at least 10 percent from January 2013.
The nation is targeting tougher rules than those set by the Basel Committee on Banking Supervision to “create more stable banks, prevent future crises and thus reduce the risk of costs for taxpayers,” they said in a joint statement today.
The krona declined 0.7 percent to 6.9874 per dollar, extending its weekly decline to 2.9 percent. It was little changed at 9.2476 per euro.
Pound Falls
The pound dropped for a fifth day versus the dollar as an industry group reduced its outlook for U.K. house prices.
Home values will rise 1.6 percent in 2012 after falling 1 percent this year, the Centre for Economics and Business Research said in a statement today. The group, which previously forecast that prices would increase 2.4 percent next year, cut its annual projections through 2015.
Sterling slipped 0.1 percent to $1.5476, set for its second weekly decline.
Options traders are betting on more euro weakness as leaders squabble over the best way to deal with the sovereign- debt crisis.
The three-month so-called 25-delta risk reversal rate against the dollar was at minus 3.95 percent, signaling greater demand for euro puts that give the right to sell the currency versus calls, which grant the right to purchase it. The rate was at minus 4.39 percent on Nov. 17, the most since at least 2003 based on data compiled by Bloomberg News.
To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
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