Thursday, 5 January 2012

Euro Slides on Debt-Crisis Concern as U.S. Labor Market Advances

By Catarina Saraiva and Keith Jenkins
January 05, 2012, 10:16 AM EST

Jan. 5 (Bloomberg) -- The euro fell to an 11-year low against the yen and the weakest level in 15 months versus the dollar on concern Europe’s debt crisis is worsening and as reports showed the U.S. labor market is strengthening.

The 17-nation currency weakened against most major peers after France’s borrowing costs rose at a bond sale today as credit-rating companies threaten to cut the nation’s top AAA ranking. The yuan dropped after China’s central bank lowered the daily reference rate by the most since November. The Australian and New Zealand dollars weakened against the greenback for a second day as investors sought safer assets.

“The worries that are going on in Europe could trump all of the better data we’ve been getting out of the U.S. in terms of risk sentiment,” said David Mann, regional head of research for the Americas at Standard Chartered Plc. in New York. “The markets are still very weary of a potential downgrade.”

The euro fell 0.6 percent to 98.73 yen at 9:53 a.m. New York time, after reaching 98.48 yen, its weakest level since December 2000. It dropped 1.1 percent to $1.2805 and tumbled below $1.28 for the first time since Sept. 13, 2010, reaching $1.2784. The dollar appreciated 0.5 percent to 77.12 yen.

The euro extended losses versus the yen and dollar after ADP Employer Services reported U.S. companies added 325,000 workers in December, beating the highest projection in a Bloomberg News survey and following a revised 204,000 gain the prior month, a report by ADP Employer Services showed. The median survey estimate was for a gain of 178,000.

U.S. Jobless Claims

Initial claims for jobless benefits in the U.S. decreased 15,000 in the week ended Dec. 31 to 372,000, Labor Department data showed. The median estimate in a Bloomberg poll forecast 375,000 claims. The less-volatile four-week moving average decreased to 373,250, the lowest since June 2008, from 376,500.

France sold 4.02 billion euros ($5.2 billion) of benchmark 10-year bonds at an average yield of 3.29 percent, compared with 3.18 percent at a sale on Dec. 1. The 10-year debt bid-to-cover ratio, or the number of bids received for each unit of debt sold, fell to 1.64 from 3.05. In all, France auctioned 7.96 billion euros of debt today, including bonds maturing in 2023, 2035 and 2041.

The nation’s credit outlook was lowered by Fitch Ratings on Dec. 16 on the “heightened risk of contingent liabilities” from the escalating euro-region crisis.

‘Not in the Mood’

“There are more downgrade rumors doing the rounds,” said Jeremy Stretch, executive director of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “So while France may have passed this hurdle, the market is not in the mood to give the euro any credit.”

Standard & Poor’s is reviewing the top ratings of both France and Germany and said last month that the euro zone’s rescue fund, the European Financial Stability Facility, may lose its top credit rating should one of its AAA rated guarantors, which include France and Germany, be downgraded.

The Australian dollar fell against its U.S. counterpart after a report showed the nation’s trade surplus unexpectedly narrowed in November as shipments abroad of resources slowed.

Exports exceeded imports by A$1.38 billion ($1.4 billion), from a revised A$1.42 billion surplus in October, the Bureau of Statistics said. That compared with the median estimate for a surplus of A$1.65 billion.

The Aussie weakened 1.2 percent to $1.0246, and New Zealand’s dollar dropped 0.9 percent to 78.05 U.S. cents.

The yuan declined after the People’s Bank of China set the fixing 0.18 percent weaker, the biggest reduction since Nov. 15, at 6.3115 per dollar, amid concern Europe’s debt crisis will cool demand for the nation’s goods.

The yuan fell 0.1 percent to 6.3012, according to the China Foreign Exchange Trade System. It touched 6.2919 yesterday, the strongest since the country unified official and market exchange rates at the end of 1993. The currency is allowed to trade 0.5 percent on either side of the daily fixing.

--Editors: Greg Storey, Dave Liedtka
To contact the reporters on this story: Catarina Saraiva in New York at; 
Keith Jenkins in London at

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