Euro Falls to 10-Year Low Against Yen

By Andrew Rummer - Dec 29, 2011 8:38 PM GMT+0700

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Dec. 28 (Bloomberg) -- Michael Woolfolk, managing director at Bank of New York Mellon Corp., and William Rhodes, author of "Banker to the World: Leadership Lessons From the Front Lines of Global Finance," talk about the outlook for the dollar, yuan and euro. They speak with Pimm Fox on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)

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The euro slid for a fifth day against the yen and earlier reached 100.36, the weakest level since June 2001. Photographer: Jock Fistick/Bloomberg

The euro slid to a decade low against the yen and a 15-month low versus the dollar as Italian bonds fell after the nation raised less than its maximum target at a debt auction. U.S. equity futures rose while gold fell.

The euro decreased as much as 0.8 percent to 100.06 yen as of 8:35 a.m. in New York and retreated to as low as $1.2858. The yield on Italian 10-year bonds climbed four basis points to 7.04 percent. Standard & Poor’s 500 Index futures rose 0.2 percent and the Stoxx Europe 600 Index increased 0.1 percent. Gold declined to a five-month low.

Italy sold bonds due in 2022 to yield 6.98 percent, compared with 7.56 percent at the last sale on Nov. 29. The European Central Bank said overnight deposits from financial institutions declined from a record high yesterday. U.S. data showed fewer Americans filed applications for unemployment benefits over the past month than at any time in the past three years, a sign the U.S. labor market is on the mend.

“Yield levels around 7 percent are absolutely not sustainable,” said Michael Markovic, a senior fixed-income strategist at Credit Suisse Group AG in Zurich. “They could not sell the entire size they planned. It’s not positive news for the stressed sovereign-debt markets in the euro zone.”

The euro slid for a fifth day against the yen, falling to the weakest level since June 2001. The 17-nation currency was at the lowest since September 2010 against the dollar.

Italian Debt

Italy also sold 2.5 billion euros of bonds due in 2014 to yield 5.62 percent, down from 7.89 percent at the previous sale. That was less than the 3 billion-euro maximum target. Today’s auctions also included about 2 billion euros of notes due 2021 and a floating-rate security due 2018, and came after the nation sold 9 billion euros in treasury bills for 3.251 percent yesterday, about half the rate from the prior auction.

The yield on Italy’s 10-year bonds climbed to 7.14 percent on Dec. 27, the highest since Nov. 30. Spanish 10-year yields advanced eight basis points to 5.23 percent today, and the rate on similar-maturity French securities increased five basis points to 3.06 percent.

The ECB last week awarded 523 banks three-year loans totaling a record 489 billion euros to encourage lending. Overnight deposits at the central bank decreased from an all- time high yesterday, with euro-area banks parking 437 billion euros compared with 452 billion euros a day earlier.

“The ECB, for the foreseeable future, will not drain liquidity once per month as it always has done,” said Robert Rennie, Sydney-based chief currency strategist at Westpac Banking Corp., Australia’s second-largest lender. “It gives you greater confidence that this is more formal quantitative easing. Both on an outright and a cross basis, the risks still do lie to the downside for the euro.”

Merkel, Sarkozy Meeting

German Chancellor Angela Merkel and French President Nicolas Sarkozy may meet on Jan. 9 in Berlin to discuss the debt crisis, the Wall Street Journal reported, citing an unidentified European Union official familiar with the situation.

The Stoxx 600 has dropped 13 percent this year, compared (MXAP) with an 18 percent slump in the MSCI Asia Pacific Index and a 0.6 percent fall in the S&P 500.

The MSCI Asian index was little changed today. Gauges of energy and raw-material producers posted the largest drops among its 10 industry groups. Lynas Corp. (LYC), an Australian rare earths developer, retreated 5.3 percent after the Chinese government said on Dec. 27 it will keep 2012 export quotas of rare earth virtually unchanged.

U.S. Stocks

The gain in S&P 500 futures indicated the measure will rebound from yesterday’s 1.3 percent decline. Treasury 10-year yields (USGG10YR) were little changed at 1.92 percent.

The four-week moving average for jobless claims, a less volatile measure than the weekly figures, dropped to 375,000 last week, the lowest level since June 2008, Labor Department figures showed. Applications rose for the first time in a month in the week ended Dec. 24, climbing by a more-than- forecast 15,000 to 381,000.

Figures from the National Association of Realtors may say pending sales of previously owned homes rose 1.5 percent in November after a 10 percent jump the previous month. The Institute for Supply Management-Chicago Inc. will release its business barometer for December at 9:45 a.m. New York time.

Gold futures fell as much as 2.6 percent to $1,523.90 an ounce, the lowest price since July. Oil in New York rebounded 0.4 percent to $99.76 a barrel after falling 2 percent yesterday. Cotton jumped 0.6 percent to 91.22 cents a pound, the third consecutive advance.

The MSCI Emerging Markets Index dropped 0.3 percent, extending this week’s losses to 1.8 percent. Russia’s Micex fell 0.6 percent as oil declined. Indian stocks dropped for a third day, with the Sensex sliding 1.2 percent. China’s Shanghai Composite Index advanced 0.2 percent, a second straight day of gains.

To contact the reporter on this story: Andrew Rummer in London at arummer@bloomberg.net

To contact the editor responsible for this story: Chris Nagi at chrisnagi@bloomberg.net