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Euro Near 13-Month Low Versus Dollar on European Debt Crisis

Data Analysis 09:08:46AM May 06, 2010 Source:SMM

LONDON, May 6 -- The euro traded near a 13-month low against the dollar on concern Greece's debt crisis will spread through the region after Moody's Investors Service said Portugal's credit rating may be cut.

The 16-nation currency fell to a record low against Australia's before Greece's Parliament debates today austerity measures needed as a condition of an international bailout and after protests against deficit-cutting measures turned deadly. New Zealand's dollar rose the most in a week after central bank Governor Alan Bollard said the nation's economy was "less fragile," signaling he may raise interest rates.

"The debt crisis in Europe is now showing signs of contagion," said Akio Yoshino, chief economist in Tokyo at Societe Generale Asset Management (Japan) Inc., which manages the equivalent of $17 billion. "Such concern is weighing heavily on prospects for the euro."

The euro traded at $1.2840 as of 9:27 a.m. in Tokyo from $1.2814 in New York yesterday, after earlier falling to $1.2789, the weakest since March 12, 2009. The currency was at A$1.4131 from A$1.4141, after dropping to A$1.4119, a record low. The single currency was at 120.23 yen from 120.22 yen. The dollar bought 93.76 yen from 93.81 yen.

Moody's placed its Aa2 rating for Portugal on review for a possible downgrade, a process that will conclude within three months, the company said yesterday in a statement. Portugal has held the third-highest Moody's investment grade since 1998.

Spread Widens

The extra yield investors demand to hold Portuguese 10-year bonds instead of benchmark German debt rose to 295 basis points yesterday, the most since the euro's introduction in 1999. Investors demanded 731 basis points more to hold 10-year Greek bonds instead of similar-maturity bunds, also a record.

"With no end to Greek-related troubles, the euro continues to suffer," analysts led by Justin Smirk, chief economist at St. George Bank Ltd. in Sydney, wrote in a research note today.

Three people were killed after protesters set fire to a bank in central Athens in what Prime Minister George Papandreou called a "murderous act." Greece's federation of banking unions called a 24-hour strike for today.

The violence came during a general strike called after Papandreou announced a second set of wage cuts for public workers, a freeze on pensions and a second sales-tax increase to secure a bailout from the European Union and the International Monetary Fund. The measures, which aim to tame a budget deficit of almost 14 percent of economic output, were denounced as "savage" by union leaders.

Euro's Decline

The euro has fallen 15.3 percent from its 12-month high of $1.5144 reached on Nov. 25. The currency has lost 7.4 percent of its value this year, according to Bloomberg Correlation-Weighted Currency Indexes.

New Zealand's dollar rose for the first time in three days as swap traders increased the odds of a quarter-point rate increase to 98 percent, from 72 percent yesterday, according to a Credit Suisse AG index.

"Financial markets currently expect the Reserve Bank to begin raising the official cash rate around the middle of the year and continue to do this in small steps for some time," Bollard said in a statement, based on a speech in Dunedin today. "This is broadly in line with our current views."

Bollard on April 29 said he expected to start increasing the official cash rate from a record-low 2.5 percent "over the coming months, provided the economy continues to evolve as projected." Nine of 12 economists surveyed by Bloomberg News last week expected an increase at the next review in June.

N.Z. Rates

"What the Reserve Bank is saying suggests they are more or less validating market pricing," said Khoon Goh, a senior economist at ANZ National Bank Ltd. in Wellington. "The market pricing has pretty much a hike fully priced for June and 25 basis points of hikes at every meeting from then onward."

New Zealand's currency was also boosted after a government report showed the jobless rate fell last quarter by the most since at least March 1986. The rate fell to 6 percent from a revised 7.1 percent in the previous three months, Statistics New Zealand said.

The so-called kiwi climbed 1.3 percent to 72.64 U.S. cents, the biggest gain since April 28, and advanced 1.2 percent to 68.09 yen.

 

Key Words:  euro  exchange rate  global economy 

Euro Near 13-Month Low Versus Dollar on European Debt Crisis

Data Analysis 09:08:46AM May 06, 2010 Source:SMM

LONDON, May 6 -- The euro traded near a 13-month low against the dollar on concern Greece's debt crisis will spread through the region after Moody's Investors Service said Portugal's credit rating may be cut.

The 16-nation currency fell to a record low against Australia's before Greece's Parliament debates today austerity measures needed as a condition of an international bailout and after protests against deficit-cutting measures turned deadly. New Zealand's dollar rose the most in a week after central bank Governor Alan Bollard said the nation's economy was "less fragile," signaling he may raise interest rates.

"The debt crisis in Europe is now showing signs of contagion," said Akio Yoshino, chief economist in Tokyo at Societe Generale Asset Management (Japan) Inc., which manages the equivalent of $17 billion. "Such concern is weighing heavily on prospects for the euro."

The euro traded at $1.2840 as of 9:27 a.m. in Tokyo from $1.2814 in New York yesterday, after earlier falling to $1.2789, the weakest since March 12, 2009. The currency was at A$1.4131 from A$1.4141, after dropping to A$1.4119, a record low. The single currency was at 120.23 yen from 120.22 yen. The dollar bought 93.76 yen from 93.81 yen.

Moody's placed its Aa2 rating for Portugal on review for a possible downgrade, a process that will conclude within three months, the company said yesterday in a statement. Portugal has held the third-highest Moody's investment grade since 1998.

Spread Widens

The extra yield investors demand to hold Portuguese 10-year bonds instead of benchmark German debt rose to 295 basis points yesterday, the most since the euro's introduction in 1999. Investors demanded 731 basis points more to hold 10-year Greek bonds instead of similar-maturity bunds, also a record.

"With no end to Greek-related troubles, the euro continues to suffer," analysts led by Justin Smirk, chief economist at St. George Bank Ltd. in Sydney, wrote in a research note today.

Three people were killed after protesters set fire to a bank in central Athens in what Prime Minister George Papandreou called a "murderous act." Greece's federation of banking unions called a 24-hour strike for today.

The violence came during a general strike called after Papandreou announced a second set of wage cuts for public workers, a freeze on pensions and a second sales-tax increase to secure a bailout from the European Union and the International Monetary Fund. The measures, which aim to tame a budget deficit of almost 14 percent of economic output, were denounced as "savage" by union leaders.

Euro's Decline

The euro has fallen 15.3 percent from its 12-month high of $1.5144 reached on Nov. 25. The currency has lost 7.4 percent of its value this year, according to Bloomberg Correlation-Weighted Currency Indexes.

New Zealand's dollar rose for the first time in three days as swap traders increased the odds of a quarter-point rate increase to 98 percent, from 72 percent yesterday, according to a Credit Suisse AG index.

"Financial markets currently expect the Reserve Bank to begin raising the official cash rate around the middle of the year and continue to do this in small steps for some time," Bollard said in a statement, based on a speech in Dunedin today. "This is broadly in line with our current views."

Bollard on April 29 said he expected to start increasing the official cash rate from a record-low 2.5 percent "over the coming months, provided the economy continues to evolve as projected." Nine of 12 economists surveyed by Bloomberg News last week expected an increase at the next review in June.

N.Z. Rates

"What the Reserve Bank is saying suggests they are more or less validating market pricing," said Khoon Goh, a senior economist at ANZ National Bank Ltd. in Wellington. "The market pricing has pretty much a hike fully priced for June and 25 basis points of hikes at every meeting from then onward."

New Zealand's currency was also boosted after a government report showed the jobless rate fell last quarter by the most since at least March 1986. The rate fell to 6 percent from a revised 7.1 percent in the previous three months, Statistics New Zealand said.

The so-called kiwi climbed 1.3 percent to 72.64 U.S. cents, the biggest gain since April 28, and advanced 1.2 percent to 68.09 yen.

 

Key Words:  euro  exchange rate  global economy