Tuesday, 13 December 2011

Euro Hits Fresh 10-Week Low

TOKYO—The euro fell to multi-week lows versus the dollar and the yen on Tuesday in Asia as market participants remained cautious about potential actions on European sovereign bonds by ratings firms.

Standard & Poor's Ratings Services last week put the long-term sovereign-debt ratings of 15 euro-zone nations on negative watch. The firm had said it expected to announce any rating changes "as soon as possible" after the European Union summit, which took place subsequently late last week.

Market participants are thinking that the firm may act "perhaps within this week," making them reluctant to bet on the single currency, said Kenichiro Ikezawa, fund manager at Daiwa SB Investments.

Earlier in the day, Moody's Investors Service placed eight Spanish banks on review for possible downgrade, citing added pressure from economic weakness and risk from a struggling commercial real-estate market. The move didn't help market sentiment, strategists said.

The euro was at $1.3198 as of 1:50pm local time in Tokyo, after touching a fresh 10-week low of $1.3160 earlier, from $1.3188 late on Monday in New York, and was at ¥102.81, after dipping to a fresh two-week low of ¥102.60 from ¥102.76, according to EBS.

The key is whether the euro can find support at the $1.3150 mark, said Osao Iizuka, head of FX trading at Sumitomo Trust and Banking.

A clear breach of the mark could technically open the euro's downside to $1.2860 marked January 2011, dealers said.

Mr. Iizuka said bearish sentiment on the euro won't be changed unless the European Central Bank abandons its reluctance to purchase more euro-zone sovereign debt.

Meanwhile, reflecting tightness in dollar funding ahead of year-end book closings amid the euro-zone crisis, financial firms tapped a record $4.756 billion in three-month dollar loans from the Bank of Japan on Tuesday.

Still, the dollar funding situation for banks appeared to have eased somewhat after the recent joint actions by major central banks to provide dollar liquidity, Daiwa SB's Mr. Ikezawa said.

Market participants are closely watching bond auctions by Spain and Belgium later in the global day. Also in focus is whether the Fed will change its views on the U.S. economy at the Federal Open Market Committee meeting, dealers said.

The dollar was at ¥77.89 from ¥77.91 and at 0.9367 Swiss francs from 0.9371 Swiss francs. The U.K. pound was at $1.5615 from $1.5585.

The ICE U.S. Dollar Index, which measures the dollar against a basket of currencies, was at 79.463 from 79.525.

Write to Kosaku Narioka at kosaku.narioka@dowjones.com