Sept. 5 (Bloomberg) -- The dollar rose against all of its major counterparts on speculation European nations will struggle to contain the region’s debt crisis, spurring demand for the world’s reserve currency.
The euro slid to a three-week low versus the yen after an election loss for German Chancellor Angela Merkel’s party in her home state added to concern opposition is growing to bailouts for debt-saddled European nations. The Swiss franc held a three- day gain against the euro as Asian shares extended a global rout and before a U.S. report that may show growth in the service sector slowed in August.
"The U.S. economy is sluggish, the European debt concern is not going away in a hurry, so market sentiment is not going to improve for a very long time,” said Alex Sinton, a senior dealer at ANZ National Bank Ltd. in Auckland, New Zealand. "This week is certainly a risk-off scenario,” increasing demand for the U.S. dollar and the franc, he said.
The dollar rose to $1.4137 per euro, the highest since Aug. 11, before trading at $1.4147 as of 9:45 a.m. in Tokyo from $1.4205 in New York on Sept. 2. It was at 76.86 yen from 76.80. The Swiss franc advanced to 1.1181 per euro from 1.1201. The euro sank 0.3 percent to 108.74 yen after touching 108.68, a level not seen since Aug. 12.
The MSCI Asia Pacific Index of regional shares slumped 1.4 percent today. The Standard & Poor’s 500 Index and Stoxx Europe 600 Index lost more than 2 percent on Sept. 2.
The Social Democrats, Germany’s main opposition party, took 36.1 percent to win yesterday’s election in Mecklenburg-Western Pomerania, while Merkel’s Christian Democratic Union had 23.3 percent, ZDF television projections showed.
The result in the eastern state where Merkel’s election district is located means her national coalition has been defeated or lost votes in all six German state elections so far this year as voters resist her bid to prevent a euro-region breakup by putting more taxpayer money on the line for bailouts. The nation’s top constitutional court will rule on Sept. 7 in three cases challenging the country’s participation in a bailout for Greece and the euro-area rescue fund.
"Merkel’s CDU got beat in her home state, adding to the sense that opposition to any solution to a deepening crisis is growing,” Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in London, wrote in an e-mailed note.
European Central Bank President Jean-Claude Trichet is scheduled to speak in Paris today before the ECB’s policy meeting on Sept. 8. While all the 57 economists surveyed by Bloomberg expect the central bank to leave its benchmark interest rate unchanged at 1.5 percent, traders bet the ECB will cut rates by 26 basis points over the next 12 months, according to a Credit Suisse Group AG index based on swaps.
"If the ECB takes away the tightening bias, it’s going to take away some support out of the euro,” ANZ’s Sinton said. "You would see the euro moving down to the $1.4010 area.”
The Institute for Supply Management’s U.S. non- manufacturing index fell to 51 last month, the lowest since January 2010, from 52.7 in July, according to the median forecast of economists in a Bloomberg News survey before the data’s release on Sept. 6. A reading of 50 is the dividing line between expansion and contraction.
Labor Department data on Sept. 2 showed that U.S. payrolls were unchanged in August, the weakest reading since September 2010. Economists had estimated a gain of 68,000.
"The market went into payrolls hopelessly optimistic and that optimism wasn’t rewarded,” said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp., Australia’s second-largest lender. "Developments in Europe justify further risk aversion.”
President Barack Obama plans to address a joint session of Congress on Sept. 8 to propose economic measures, including tax breaks to spur hiring and more spending on infrastructure.
The yen held losses from the past two weeks versus the dollar after newly appointed Japanese Finance Minister Jun Azumi said yesterday that the government is ready to take decisive action against speculative moves in the foreign-exchange markets.