By Masaki Kondo and Monami Yui - Dec 12, 2011 2:00 PM GMT+0700
Dec. 12 (Bloomberg) -- Russell Jones, global head of fixed-income strategy at Westpac Banking Corp., talks about Europe's sovereign debt crisis. Germany’s top central banker cooled speculation that the European Central Bank will extend its role as European leaders pressed their case that a new fiscal accord will deliver the region from its two-year-old debt crisis. Jones speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)
The dollar gained against most of its major counterparts before a German report tomorrow that may show investor confidence in Europe’s largest economy slid to a three-year low, boosting demand for safer assets.
The euro slid versus the yen as Italy and France prepare to sell bills amid concern the region’s debt crisis is spreading to bigger nations. Australia’s dollar declined after a report showed the nation’s trade surplus narrowed by more than economists estimated. China’s yuan rose after the central bank set the strongest reference rate in a month and signaled the currency will be allowed to trade more freely.
“The dollar is strong as it is the only viable safe-haven currency at the moment,” said Jesper Bargmann, regional head of spot trading for major currencies in Singapore at Royal Bank of Scotland Plc. “There’s still plenty to worry about.”
The dollar advanced 0.3 percent to $1.3349 per euro at 6:48 a.m. in London. The euro fell 0.2 percent to 103.65 yen. The yen was unchanged at 77.65 per dollar.
The ZEW Center for European Economic Research may say its index of German investor and analyst expectations, which aims to predict developments six months in advance, declined to minus 55.8 in December, according to the median estimate in a Bloomberg News survey of economists. That would be the lowest reading since October 2008.
Bill Auctions
Italy will sell 7 billion euros ($9.3 billion) of 365-day bills today, while France is scheduled to auction 6.5 billion euros of short-term debt.
European Union leaders committed “to establishing a new fiscal rule” which curbs a nation’s annual structural deficit below 0.5 percent of nominal gross domestic product, according to a statement from the European Council released on Dec. 9 after a summit in Brussels. The meeting offered few new measures and doesn’t diminish the risk of credit-ranking revisions, Moody’s Investors Service said in its Weekly Credit Outlook.
“While the fiscal compact is a step in the right direction, it’s not aimed at addressing the immediate issue of the sovereign debt crisis which is threatening to plunge the euro-zone into a deep recession,” John Kyriakopoulos, Sydney- based head of currency strategy at National Australia Bank Ltd., wrote in a research note today.
The euro has fallen 1.2 percent in the past month, according to Bloomberg Correlation-Weighted Indexes tracking 10 developed-nation currencies. The dollar has strengthened 2.1 percent, the best performance, and the yen has advanced 1.4 percent.
Narrower Trade Surplus
Australia’s dollar weakened against 10 of its 16 major peers after a government report showed the nation’s trade surplus narrowed to A$1.6 billion ($1.63 billion) in October from a revised A$2.25 billion in September. The median estimate in a Bloomberg survey was for a surplus of A$2 billion.
The so-called Aussie declined 0.3 percent to $1.0182 and also dropped 0.3 percent to 79.06 yen.
Demand for the yen and dollar was limited as Asian stocks extended a global rally and before a U.S. report tomorrow projected to show retail sales rose in November.
The MSCI Asia Pacific Index (MXAP) of shares advanced 0.9 percent after the Standard & Poor’s 500 Index climbed 1.7 percent in New York on Dec. 9. U.S. retail sales probably increased 0.6 percent last month after a 0.5 percent gain in October, a Bloomberg poll of economists indicates.
A report on Dec. 9 that showed the Thomson Reuters/University of Michigan preliminary index of consumer sentiment rose to a six-month high of 67.7 in December from 64.1 in November, beating estimates.
Yuan Advances
“Higher stock prices signal the market may continue to lean toward risk-on in the short term,” said Tohru Sasaki, head of Japan rates and foreign-exchange research at JPMorgan Chase & Co. in Tokyo. “The improving economic data from the U.S. is supportive of stocks, causing some dollar-selling.”
The Federal Reserve will hold a policy meeting tomorrow, at which the U.S. central bank is expected to keep its target rate in a range of zero to 0.25 percent, according to another survey of economists.
China’s yuan gained 0.07 percent to 6.3605 per dollar, set for the biggest percentage advance since Dec. 1.
Policy makers will maintain flexibility based on the country’s situation while pushing forward with interest-rate and exchange-rate reform, the Financial News reported, citing Xuan Changneng, head of the People’s Bank of China’s financial stability bureau. The central bank raised its daily fixing 0.09 percent to the highest level since Nov. 9.
The nation’s exports rose 13.8 percent in November from a year earlier, the smallest gain since 2009, according to customs data released Dec. 10.
“The PBOC’s comment quelled investors’ depreciation expectations after the weaker export growth,” said Kenix Lai, a Hong Kong-based currency analyst at Bank of East Asia Ltd. “The stronger fixing also shows that China will still allow gains in the currency, even though the pace may slow.”
To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.
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