The euro traded 0.3 percent from a one-week low against the dollar on speculation European leaders meeting in Brussels will fail to provide a quick solution to the region’s sovereign-debt crisis.
The 17-nation currency is poised for weekly losses versus the yen and the greenback after the European Central Bank yesterday damped expectations it will buy more government bonds. German Chancellor Angela Merkel called the 15th summit in 23 months part of a “step-by-step” solution. The yen climbed against all 16 of its major peers this week on signs the global economy is worsening and before China is forecast to say growth in industrial output slowed in November. The Australian dollar weakened as Asian stocks extended declines.
“The market is again thinking that it might take a long time to solve the debt crisis,” said Kumiko Gervaise, an analyst in Tokyo at Gaitame.com Research Institute Ltd., a unit of Japan’s largest online currency margin-trading company. “I expect the euro to trade lower.”
The common currency fetched $1.3328 as of 12:18 p.m. in Tokyo from $1.3341 yesterday and has declined 0.5 percent since Dec. 2. It fell to as low as $1.3289 yesterday, the least since Nov. 30 The euro was little changed at 103.58 yen from 103.57 in New York yesterday and was set for a 0.8 percent drop this week. The yen traded at 77.69 per dollar from 77.64.
The Australian dollar dropped 0.4 percent to $1.0124. The MSCI Asia Pacific Index (MXAP) of stocks fell 1.7 percent, declining for a second day.
Talks Under Way
European leaders began open-ended talks yesterday with no press briefing scheduled. They are navigating a labyrinth of political, legal and economic constraints amid pressure from financial markets in a bid to craft a fifth “comprehensive” package to stamp out the crisis that began with the Greek government discovering an unexpected budget hole in October 2009.
Gervaise predicts the euro may fall to as low as $1.29 by the end of the year.
The ECB yesterday announced steps to make it easier for financial institutions to borrow. The central bank loosened collateral rules and for the first time pledged to offer banks unlimited cash for three years. Policy makers also cut the benchmark lending rate by a quarter-percentage point to 1 percent, matching a record low.
The measures “should ensure enhanced access of the banking sector to liquidity,” ECB President Mario Draghi said.
ECB Bond Purchases
Draghi repeated his call for a “fiscal compact” and said he hadn’t hinted the ECB would automatically support such an initiative with more bond purchases.
“Ultimately the ECB will have to become more active” on its bond buying program, said Robert Rennie, Sydney-based chief currency strategist at Westpac Banking Corp., Australia’s second-largest lender. That “will continue to undermine the euro,” he said.
Westpac forecasts the euro will slide to $1.20 by June.
The currency has dropped 0.6 percent in the past month against nine developed-market peers tracked by Bloomberg Correlation Weighted Indexes. The dollar has advanced 1.2 percent and the yen has gained 1.4 percent.
The dollar tends to strengthen during periods of financial stress because of its position as the world’s reserve currency. The yen gains as Japan’s export-reliant economy doesn’t need foreign capital to balance current accounts -- the broadest measure of trade.
Recovery at Risk
Japan’s economic recovery following two straight quarters of contraction and a record earthquake in March is threatened by a global slowdown and a yen rate that is near post-World War II highs against the dollar.
The nation’s economy grew less than the government’s initial estimate last quarter as companies reduced investment on concern overseas demand was stalling. Gross domestic product increased at an annualized 5.6 percent in the three months ended Sept. 30, the Cabinet Office said today, compared with a preliminary figure of 6 percent.
China’s industrial output rose 12.6 percent in November from a year earlier, compared with a 13.2 percent gain the previous month, according to a Bloomberg News survey of economists before the statistics bureau is scheduled to report today.
Chinese consumer price inflation slowed in November more than economists had estimated. Prices increased 4.2 percent from the previous year, less than the median survey estimate of 4.5 percent. October’s figure was 5.5 percent.
(source: Bloomberg)
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09/12/2011 10:48:35 AM | 