Wednesday, 14 December 2011

Euro Falls Below $1.30 as Italy Finance Costs Rise; Krone Slumps

By Catarina Saraiva and Lukanyo Mnyanda

Dec. 14 (Bloomberg) -- The euro fell below $1.30 for the first time since January as Italian borrowing costs increased at a debt auction and Spanish banks’ borrowings from the European Central Bank climbed by the most in a year.

The 17-nation euro declined to a 10-week low against the yen as European stocks declined, damping demand for assets denominated in the euro region’s currency. Norway’s krone weakened after the Norges Bank cut interest rates for the first time since 2009. The pound was the biggest gainer against the euro among the major currencies as investors sought protection from Europe’s sovereign-debt crisis.

“It looks like the euro is going to remain under periodic bouts of pressure that could be quite acute,” said Ray Attrill, a senior currency strategist at BNP Paribas SA in New York. “The European Union summit agreement was seen as the bare minimum.”

The euro slipped 0.3 percent to $1.3001 at 8:39 a.m. New York time, after depreciating to $1.2965, the weakest level since Jan. 12. The shared currency dropped 0.2 percent to 101.50 yen after sliding to 101.27, the lowest since Oct. 4. The dollar was little changed at 78.07 yen.

The Stoxx Europe 600 Index declined 0.9 percent.

Reverse Pressure

The euro’s 14-day relative strength index versus the dollar weakened to 28.8 today, the lowest level since Oct. 3. A reading below 30 signals that an asset may be oversold and due to reverse direction.

Norges Bank cut its main interest rate to 1.75 percent from 2.25 percent, reversing part of a rate-increase cycle that started in October 2009 as the euro debt crisis threatens growth. The median estimate of 17 economists in a Bloomberg News survey had predicted a cut to 2 percent.

The krone was 0.5 percent weaker at 5.9685 per dollar and fell 0.2 percent to 7.7591 per euro after strengthening 0.2 percent.

The pound rose for a third day against the euro, the longest run in a month, as stock declines spurred demand for the perceived safety of the British currency.

“The pound still trades as a semi-safe haven,” said Elsa Lignos, a currency strategist at RBC Europe Ltd. in 
London. “On days like today, when risk appetite is under pressure, the pound will benefit.”
Sterling gained 0.3 percent to 83.95 pence per euro, and was little changed at $1.5498.
Italy’s Debt

Italy sold 3 billion euros ($3.9 billion) of five-year bonds, the maximum target for the auction, and borrowing costs rose to the highest since 1997 as Parliament prepared to approve a 30 billion-euro emergency budget plan. The Treasury sold the bonds to yield 6.47 percent, up from 6.29 percent at the prior auction on Nov. 14.

Spanish lenders borrowed an average 98 billion euros from the ECB last month, the most since September 2010, according to data published by the Bank of Spain on its website. The increase was the biggest since June 2010 in absolute terms, signaling banks are struggling to access other sources of finance.

European leaders unveiled a blueprint last week for a closer fiscal accord to save the currency. They agreed to move up the creation of the permanent European Stability Mechanism and said that by March the EU will reassess plans to cap the overall lending of the ESM and the temporary rescue fund at 500 billion euros. 

German Chancellor Angela Merkel yesterday reiterated her rejection of increasing the upper limit of funding for the funds.

Euro View

“It’s hard to see a positive scenario for the euro,” said Kumiko Gervaise, an analyst in Tokyo at Research Institute Ltd., a unit of Japan’s largest online currency margin-trading company.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the U.S. currency against those of six trading partners, rose 0.3 percent to 80.435.

The Federal Reserve’s policy-setting panel, which met in Washington yesterday, said the economy “has been expanding moderately,” compared with the Nov. 2 assessment that growth “strengthened somewhat.” The central bank also said “strains in global financial markets continue to pose significant downside risks to the economic outlook.” It refrained from taking new action to lower borrowing costs.

The dollar has appreciated 5.2 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The euro slipped 0.9 percent and the yen gained 1.3 percent.

--Editors: Paul Cox, Dave Liedtka

To contact the reporters on this story: Catarina Saraiva in New York at; 
Lukanyo Mnyanda in Edinburgh at

To contact the editor responsible for this story: Dave Liedtka at