Tuesday, 5 June 2012

Euro Falls on Speculation Debt Crisis Will Worsen; Aussie Gains

Spanish Budget Minister Cristobal Montoro
Cristobal Montoro, Spain's budget minister. Photographer: Denis Doyle/Bloomberg

Bloomberg News By Keith Jenkins and Monami Yui on June 05, 2012

The euro declined from a one-week high against the dollar as speculation the region’s sovereign debt crisis is worsening sapped demand for the single currency.

The euro fell for the first time in three days against the yen before a report forecast to show the region’s retail sales fell in April and Spanish Budget Minister Cristobal Montoro called for European funds to be used to shore up the nation’s banks. Finance ministers and central bank governors from the Group of Seven hold a call today to discuss the debt crisis. Australia’s dollar rose after the central bank cut interest rates by less than swap rates had indicated.

Rallies in the euro “are still worth selling into because the structural negatives are not going to go away,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “There are still a lot of structural headwinds, and the data isn’t particularly constructive, and the lack of political coherence is another ongoing concern.”

The euro declined 0.3 percent to $1.2456 at 9:03 a.m. in London after rising to $1.2542, the strongest level since May 29. The shared currency dropped 0.6 percent to 97.35 yen. It rose 1.2 percent over the previous two days. Japan’s currency was little changed at 78.24 per dollar.

Spanish banks don’t need an “excessive” amount of funds, and the question is “where that figure comes from,” Montoro said in an interview with broadcaster Onda Cero today. “That’s why it’s so important that the European institutions open up and help us achieve, help facilitate, that figure because we’re not talking about astronomical figures.”

Retail Sales

Euro-region retail sales declined 0.1 percent in April, after gaining 0.3 percent in March, according to the median forecast of a Bloomberg News survey before today’s report.

G-7 members are “concerned about the unstable situation in the current global economy and we need to share these concerns,” Japan’s Finance Minister Jun Azumi told reporters in Tokyo. Canadian Finance Minister Jim Flaherty said yesterday in Ottawa that officials would discuss “the situation in Europe,” without elaborating.

Australia’s dollar strengthened for a second day after the central bank cut the overnight cash-rate target by 25 basis points, or 0.25 percentage point, to 3.5 percent.

Swaps data compiled by Bloomberg had shown a more than 40 percent chance of a reduction to 3.25 percent before the Reserve Bank of Australia made its announcement.

The so-called Aussie rose 0.4 percent to 97.71 U.S. cents after dropping to 95.82 on June 1, the weakest since Oct. 5.

To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net 
Keith Jenkins in London at kjenkins3@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net