Currencies

[Muthukali]

Euro Set for Biggest Weekly Decline in a Month

The euro was set for the biggest weekly decline in a month amid concern leadership changes at elections in France and Greece this weekend could derail the region’s austerity efforts.

The 17-nation currency was 0.2 percent from an almost two- year low versus the British pound before a private report that may confirm the region’s output of services and manufacturing shrank for a third month. The Dollar Index was poised for a weekly gain before a U.S. data forecast to show employment increased last month in the world’s biggest economy.

“Markets are concerned about what new leaders will do,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. Euro demand may see “a more negative impact because of some uncertainties ahead.”

The euro was little changed at $1.3147 as of 8:48 a.m. in Singapore from the close in New York yesterday. It has lost 0.8 percent this week, the biggest slide since the period ended April 6. The common currency fell 0.1 percent to 105.40 yen. It was at 81.22 pence after falling to 81.03 yesterday, the lowest since June 2010. The dollar was little changed at 80.16 yen.

Japan’s markets are shut today for a public holiday.

France will have a presidential election and Greece will have parliamentary elections, both scheduled for May 6.

French President Nicolas Sarkozy and Socialist Francois Hollande wrap up their campaigns today. Hollande has called for a re-negotiation of the budget pact crafted by European leaders in March, saying it needs to place more emphasis on growth. He has rejected a Sarkozy plan to raise sales taxes to fund a cut in payroll charges.

Anti-Bailout Parties
In Greece, neither of two major political parties that have supported the nation’s international bailouts -- New Democracy and Socialist Pasok -- is likely to win an outright majority in the 300-seat parliament.

The French and Greek votes “add to the uncertainty” in the euro area, said Kurt Magnus, executive director of foreign- exchange sales in Sydney at Nomura Holdings Inc.

A euro-area composite index for services and manufacturing industries was at 47.4 in April, below the 50 level that indicates contraction, according to economist estimates before London-based Markit Economics releases its final reading today.

“Any downward revisions from the preliminary reading should maintain expectations for lower yields and a weaker euro,” BNP Paribas SA strategists, including Steven Saywell, head of foreign-exchange strategy for Europe, wrote in a research note referring to the European composite index. “As such we reiterate our euro-dollar call for $1.28 by the end of this quarter.”

The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, was little changed at 79.214 and has risen 0.7 percent since April 27.

U.S. employers added 160,000 jobs last month after a 120,000 increase in March, the median estimate of economists showed before the Labor Department report due today.

 

[Muthukali]

Aussie Set for Biggest Drop This Year on RBA Easing Bets

Australia’s dollar is poised for its biggest weekly drop this year before the Reserve Bank publishes its quarterly monetary policy statement following its unexpected decision to cut interest rates by half a point on May 1.

The so-called Aussie has fallen versus all but one of its 16 major peers since April 27 as investors increased bets that policy makers will push the benchmark rate to a record low. New Zealand’s dollar was 0.2 percent from its weakest level in more than three months against its U.S. peer on prospects Asian stocks will extend a global equity rout. Both South Pacific currencies fell yesterday after data showed growth slowed in U.S. services industries, curbing demand for risk assets.

“The Aussie has made its move slightly lower against the U.S. dollar,” said Hans Kunnen, chief economist at St. George Bank Ltd. in Sydney. “The Reserve Bank is seeing weaker inflation and growth, and has therefore moved interest rates appropriately.”

The Australian dollar was little changed from yesterday at $1.0270 as of 9:46 a.m. in Sydney. It’s poised for a 1.9 percent drop this week, the biggest since Dec. 16. It bought 82.40 yen from 82.30, having fallen 2 percent since April 27.

The New Zealand dollar was at 80.08 U.S. cents from 79.97 cents yesterday, when it slid to 79.88, the lowest since Jan. 17. The so-called kiwi was at 64.25 yen from 64.13 yesterday, when it declined to 64.08, the weakest since Feb. 8.

The yield on Australia’s 10-year note dropped one basis point to 3.56 percent. It reached a record low of 3.53 percent on May 1. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell three basis points to 2.57 percent, the least recorded in Bloomberg data going back to 1993.

‘Somewhat Weaker’
The Reserve Bank of Australia’s policy statement today will contain its forecasts for growth and inflation. Governor Glenn Stevens this week lowered the central bank’s key rate to 3.75 percent from 4.25 percent, citing economic conditions that “have been somewhat weaker than expected.” The majority of economists surveyed by Bloomberg News had predicted a quarter- percentage-point reduction.

Interest-rate swaps data compiled by Bloomberg show investors are betting that policy makers will lower its benchmark to 3 percent by November and that there is a more than 70 percent chance of a rate cut next month.

The Institute for Supply Management said yesterday its non- manufacturing index, a gauge of U.S. service industries, fell to a four-month low of 53.5 in April from 56 in March. The median forecast of economists surveyed by Bloomberg was 55.3. A reading above 50 in the Tempe, Arizona-based group’s gauge signals expansion.

 

[Muthukali]

Yen Gains as Job Data, Europe Elections Fuel Haven Demand

The yen gained versus all of its 16 most-traded counterparts as investors sought safety after U.S. payrolls increased less than forecast in April and before elections in Europe that may result in leadership changes.

The euro fell for a fifth day versus the dollar, the longest stretch since September, as France and Greece prepared for elections May 6, spurring bets their commitment to austerity may flag. U.S. employers added the fewest jobs in six months, fueling concern the U.S. economic recovery is faltering and increasing speculation the Federal Reserve may make more asset purchases to spur growth. Higher-yielding currencies tumbled.

“The outlook for the U.S. economy is deteriorating, and the likelihood for quantitative easing is increasing,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp., the world’s largest custodial bank. “There’s also the risks associated with the elections in Europe over the weekend, so all the more reason to move to the sidelines in more of a risk-off trade.”

The yen strengthened 0.4 percent to 79.85 per dollar at 5 p.m. New York time, approaching the 79.64 it touched May 1, the strongest since Feb. 21. It gained 0.5 percent for the week. Japan’s currency rose 0.9 percent to 104.49 per euro. The dollar advanced 0.5 percent to $1.3084 per euro, gaining 1.3 percent for the week.

The greenback appreciated 0.8 percent to $1.0182 against the Australian dollar. The Aussie tumbled as much as 1.4 percent to 81.19 yen, the weakest level since Feb. 1.

Oil Falls
Stocks and commodities slid as risk appetite shrank. Crude oil for June delivery dropped below $100 for the first time since Feb. 13, falling 3.8 percent to $98.62 per barrel in New York. The Standard & Poor’s 500 Index (SPX) retreated 1.6 percent.

The currencies of Canada and Mexico, whose largest trading partner is the U.S., weakened after the jobs report. The Canadian dollar fell 0.8 percent to 99.61 cents per U.S. dollar, and Mexico’s peso lost 1.2 percent to 13.1680 to the greenback.

Nonfarm payrolls added 115,000 jobs, after a revised increase of 154,000 in March that was more than initially estimated, Labor Department figures showed today in Washington. The median estimate in a Bloomberg News survey was for a 160,000 rise. The jobless rate fell to 8.1 percent, from 8.2 percent.

“The headline employment report wasn’t great, but I don’t think it’s going to change the foreign-exchange market’s very narrow ranges,” said Alan Ruskin, global head of Group-of-10 currency strategy at Deutsche Bank AG in New York. “It does seem like the U.S. economy slowed down a bit from the winter, but it’s not to the point where it’s necessarily going to change key variables like whether the Fed is going to change policies.”

‘Do More’
Federal Reserve Chairman Ben S. Bernanke said last week the central bank is “prepared to do more” if necessary to boost the economy. He spoke at a press conference after his Federal Open Market Committee refrained at a two-day meeting from new stimulus moves and said in a statement the economy has been expanding moderately.

The central bank bought $2.3 trillion of bonds in two rounds of quantitative easing from December 2008 to June 2011 to lower borrowing costs. The Dollar Index fell 14 percent during that period.

France and Greece hold elections this weekend, with French voters casting ballots in the final round of the country’s presidential race and Greeks set to decide on a new parliament.

Francois Hollande, the Socialist challenger for the French presidency who is leading incumbent Nicolas Sarkozy in opinion polls, has called for a re-negotiation of the budget pact crafted by European leaders in March, saying it needs to place more emphasis on growth.

‘Keeping People Nervous’
In Greece, neither of two major political parties that have supported the nation’s international bailouts -- New Democracy and Socialist Pasok -- is likely to win an outright majority.

“There’s so many political events going through the weekend and into next week that it’s keeping people nervous about being long euros,” said David Mann, regional head of research for the Americas at Standard Chartered Plc in New York. Long positions are bets a currency or security will gain.

The euro slumped 3.8 percent over the past six months, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 2 percent, and the yen declined 0.3 percent.

A euro-area composite index based on a survey of purchasing managers in services and manufacturing dropped to 46.7 from 49.1 in March, London-based Markit Economics said. That’s below an initial estimate of 47.4 on April 23. A reading below 50 indicates contraction.

The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major trade partners, rose 0.4 percent to 79.508.

Net Longs
Futures traders are betting on the dollar to rise versus its major peers for the first time since April 3. The difference in the number of wagers by hedge funds and other large speculators on a rise in the dollar versus those on a loss --so- called net longs -- was 17,592 on May 1, compared with net shorts of 38,416 a week earlier, Commodity Futures Trading Commission data showed.

The dollar may test its low this week of 79.64 yen, reached May 1, as it fails to approach its 21-day moving average against the Japanese currency, according to Barclays Plc. The average is 80.85 yen, technical strategists led by Jordan Kotick wrote in a note to clients today. The dollar, which last reached that level April 27, has depreciated 0.5 percent against the yen this week.

The firm’s outlook remains bullish on the currency pair, Kotick wrote. A sustainable recovery next week, with a close above 80.85 yen, could lead the dollar to appreciate to 84 yen and 89 yen, he wrote.

Markets in Japan were closed today and yesterday for Golden Week holidays.

 

[Muthukali]

Euro Drops to 3-Month Low After Greek, French Elections

The euro fell to a three-month low after Socialist Francois Hollande was elected president of France and as Greek voters flocked to anti-bailout parties, stoking concern austerity efforts in Europe may be derailed.

The 17-nation currency slid for a sixth day, its longest series of losses since September 2011, after German Chancellor Angela Merkel’s party had its worst election result in more than half a century in the state of Schleswig-Holstein. The yen and the dollar rose versus most of their peers as Asian stocks extended a global rout, boosting demand for haven currencies.

“There are major concerns about the euro,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp. (8711), a currency margin company. “What’s common to both Greek and French voting is that people aren’t feeling good about austerity measures, which are the crux to a resolution of Europe’s debt problems.”

The euro declined to $1.2955, the weakest since Jan. 25, before trading at $1.2981 as of 11:42 a.m. in Tokyo, 0.8 percent below last week’s close in New York. It dropped 0.8 percent to 103.64 yen. The U.S. dollar was little changed at 79.84 yen.

The MSCI Asia-Pacific Index (MXAP) of shares slid 2.3 percent. The Standard & Poor’s 500 Index of U.S. stocks fell 1.6 percent on May 4 after government data showed American employers added fewer workers in April than economists had estimated.

Austerity Measures
Austerity measures aimed at stemming Europe’s debt woes have driven economies from the Netherlands to Spain back into recession, emboldening politicians campaigning for growth. The elections took place as 386 billion euros ($501 billion) of emergency loans for Greece, Ireland and Portugal and a focus on deficit reduction failed to stem a sovereign-debt crisis.

The euro has declined 0.3 percent over the past month, according to Bloomberg Correlation-Weighted Indexes tracking 10 developed-nation currencies. The dollar has risen 0.7 percent and the yen has advanced 3.2 percent, the indexes show.

Hollande got about 52 percent of the vote in the French presidential election against about 48 percent for incumbent Nicolas Sarkozy, according to estimates by four pollsters.

“The Hollande victory was largely expected, but it does act as a trigger to increase demand for the dollar,” said Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in New York.

Berlin Invitation
Hollande’s platform calls for policies Merkel opposes, including increased spending and delayed deficit cuts. He used his campaign to call for an activist European Central Bank, defying Germany. Merkel telephoned Hollande to congratulate him and to invite him for talks in Berlin “as soon as possible,” according to a statement from her government.

Merkel’s Christian Democratic Union recorded its lowest share of the vote since 1950 in the northern state of Schleswig- Holstein. It placed first with 30.9 percent support, while coalition partner Free Democratic Party slumped to 8.2 percent, according to ZDF television projections. That’s not enough for a rerun of their CDU-FDP coalition.

In Greece, New Democracy won 20 percent of the total vote with more than half of the ballots from yesterday’s elections counted, according to the Interior Ministry website. Socialist Pasok, which partnered with New Democracy in securing a second rescue package for the country, trailed in third place with 42 seats. Official projections predicted the two would fall one short of the 151 seats needed to win a majority.

Syriza, a coalition of left parties which has vowed to cancel the bailout terms, has 49 seats as the second-biggest party. With the nation dependent on rescue funds to stay in the euro, the next government will need to find cuts worth 5.5 percent of gross domestic product in 2013 and 2014.

NZD Moving Average
“Very few nations can stand austerity,” Khiem Do, Hong Kong-based head of Asian multi-asset strategy at Baring Asset Management Asia Ltd., which oversees about $10 billion, said in an interview with Bloomberg Television. “The euro has to fall a lot more in order to cushion the austerity programs.”

New Zealand’s dollar may decline further against the yen as its 200-day moving average is tested, Sharon Zollner, a senior economist at Australia & New Zealand Banking Group Ltd. (ANZ), and Alex Sinton, director for institutional foreign exchange, wrote in a research note today. The 200-day moving average was at 63.18 today.

The so-called kiwi retreated to 63.05 yen, the least since Feb. 1, before trading at 63.24 yen, 0.5 percent lower than the close at the end of last week.

 

[Muthukali]

Euro Strength Intact as Contagion Ends Aussie Dollar Haven

The euro is confounding bears predicting a meltdown as it gets an unexpected boost from the economic and political turmoil gripping Europe.

The 17-nation currency has risen about 1 percent against nine peers from this year’s low on Jan. 16, while the dollar slid 2.3 percent, data compiled by Bloomberg show. Futures traders are trimming bets that it will fall against the dollar, while options show investors are less bearish.

Europe’s common currency is trading more than 8 percent above the average against the dollar since its 1999 creation even after Spain, Greece, Italy and Portugal slid into recession and Nicolas Sarkozy became the first French president in 30 years to fail to win re-election amid a region-wide backlash against austerity. The turbulence is infecting economies including Australia and Sweden, regarded as havens, prompting policy makers in those countries to cut interest rates, weakening their currencies.

“The euro’s pretty much hanging in there,” Eric Busay, a currency and international fixed-income money manager in Sacramento at California Public Employees’ Retirement System, the largest U.S. public pension, with $235 billion in assets, said in an telephone interview on April 30. “When central banks are cutting rates, as they are in several countries, there is clearly not a great reason to be bullish on those currencies.”

Bears Defied
The shared currency’s resilience since the debt crisis started in Greece in October 2009 has defied investors including billionaire George Soros, who said in January that German-driven austerity plans in Europe risk creating “tensions that could destroy the European Union.” Bets made at Intrade.com show a 39.5 percent chance of a country exiting the European Union by Dec. 31, 2013, down from 65 percent in November.

Francois Hollande, 57, defeated Sarkozy, getting about 52 percent against about 48 percent for the incumbent, according to estimates by four pollsters. Hollande has advocated a more aggressive European Central Bank role in spurring growth, a measure opposed by Germany.

Greek voters flocked to anti-bailout parties, throwing doubt on whether the two main parties can form a government strong enough to implement spending cuts to ensure the flow of bailout funds. According to projections based on partially counted ballots on state-run NET TV, Pasok and New Democracy would fall one short of the 151 seats needed to win a majority.

‘Currencies Can Fall’
The euro declined 1.3 percent last week to $1.3084 and was 1.8 percent lower at 104.49 yen. Europe’s common currency has averaged about $1.20 since it was introduced in January 1999, and over the last two years has ranged from $1.1877 in June 2010 to $1.4940 in May 2011.

The shared European currency weakened 0.3 percent to $1.3047 at 11:04 a.m. New York time, after dropping to $1.2955, the lowest level in more than three months.

Strategists say the worst may be over. The median of 48 estimates in a Bloomberg survey is for the euro to trade at $1.30 by year-end. It will buy 106 yen, a separate survey showed.

“In a weakening global environment, countries that can cut rates will do so and their currencies can fall,” Kit Juckes, head of foreign-exchange research at Societe Generale SA in London, said in a telephone interview on May 1. “Europe is an economy with a currency that isn’t expensive, with not much scope or appetite for cuts.”

Rate Decision
Traders drove the euro higher on May 3, before it ended little changed, as the ECB kept rates on hold and President Mario Draghi said policy makers didn’t discuss a cut. It depreciated 0.1 percent the past three months based on Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies, while Australia’s dollar dropped 4.6 percent, the yen 2.4 percent, Sweden’s krona fell 1.2 percent and New Zealand’s dollar 3.6 percent.

Euro estimates are little changed from current levels even after Spain said last week its gross domestic product contracted 0.3 percent in the first quarter, putting the euro region’s fourth-largest economy into its second recession since 2009.

At least eight European leaders have either resigned or lost elections since the start of the debt crisis as austerity measures contributed to the region’s economic slowdown. Dutch Prime Minister Mark Rutte faces elections in September after his coalition government collapsed last month amid a dispute over spending cuts.

‘Adverse Shocks’
International Monetary Fund Managing Director Christine Lagarde said April 19 in Washington that Europe is the “epicenter” of risks to global growth. The economy of the nations that share the euro will probably contract 0.3 percent in 2012 after expanding by 1.4 percent in 2011, the IMF said April 17. The Washington-based lender predicted world growth would slow to 3.5 percent from 3.9 percent last year.

Europe will remain “a potential source of adverse shocks for some time,” Reserve Bank of Australia Governor Glenn Stevens said on May 1 as policy makers reduced their benchmark by 50 basis points, or 0.50 percentage point, to 3.75 percent. The bigger-than-forecast cut drove the so-called Aussie down as much as 1.35 percent against the euro, the biggest intraday drop since November.

Sweden’s central bank has reduced borrowing costs twice since December, to 1.5 percent from 2 percent, as the economy shrank 1.1 percent in the fourth quarter, exceeding the 0.3 percent contraction in the euro zone. Two out of six Riksbank board members called for a cut to 1 percent at the April meeting, when the main rate was kept unchanged, minutes of the gathering showed on May 2.

U.S. Recovery
There’s a 36 percent chance the Riksbank cuts the main rate at its next meeting on July 4, up from 19 percent on April 26, according to a Credit Suisse Group AG index based on swaps. The odds of Australia’s central bank lowering its rate at its next meeting was 89 percent, the Credit Suisse measure showed.

Support for the euro may wane should the U.S. recovery gather pace, reducing the odds that the Federal Reserve will undertake a third round of stimulus that weakens the dollar.

Manufacturing in the U.S. expanded in April at the fastest pace in 10 months, data from the Institute for Supply Management showed on May 1. Four Fed presidents said the same day that more so-called quantitative easing through bond purchases probably won’t be needed. American employers added 115,000 workers last month, fewer than forecast, while the jobless rate fell to a three-year low of 8.1 percent as people left the workforce, the Labor Department said on May 4.

Growing Backlash
The euro may also weaken if Europe’s economy slows enough to cause policy makers to cut their refinancing rate.

“The ECB is facing a lot of pressure to ease,” Guillermo Felices, head of European currency strategy at Barclays Plc in London, said in an interview on May 1. “Eventually they will have to ease given the pressures on the economy.”

He sees a decline in the euro to $1.20 in the next year.

The backlash against austerity measures is growing. Spain’s largest unions led marches involving thousands of protesters in 55 cities April 29. Riots have broken out in Greece in response to government cuts in pensions and wages.

Spain’s 10-year bond yield has jumped about 60 basis points this year, or 0.6 percentage point, to 5.73 percent. Italian yields, at 5.43 percent, are 1 percentage point above their average over the past decade. Spain’s IBEX 35 Index of stocks is down 20 percent this year, while the broader Euro Stoxx 50 Index has lost 2.9 percent.

German Economy
Europe’s common currency is getting support as surveys signal that Germany’s GDP, the region’s largest, will expand for a third consecutive year. That may prompt the ECB to keep borrowing costs unchanged as it seeks to tame inflation that’s been above its target of just below 2 percent since December 2010.

Draghi took over as ECB president in November, and reversed the two rate increases made by his predecessor Jean-Claude Trichet in April and July. He has kept the rate at 1 percent the past five meetings while pumping about 1 trillion euros into the banking system by providing three-year loans in two longer-term refinancing operations, or LTROs, in December and February.

He will keep the rates on hold through at least the third quarter of 2013, based on the median prediction of analysts in Bloomberg News surveys.

Shorts Decline
The loans “took the risk of a devastating bank failure more or less off the table,” Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage, said in a May 3 telephone interview. “While they didn’t necessarily address the underlying issues of the credit crisis, they did kind of ring-fence euro’s banking sector from further deterioration. That was positive overall for the euro.”

The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro against the dollar compared with those on an advance -- so-called net shorts -- was 106,990 contracts on May 1, down from a record 171,347 in January, figures from the Washington-based Commodity Futures Trading Commission show.

The premium for three-month options granting the right to sell the euro against the dollar relative to those allowing for purchases was 2.24 percentage points at the end of last week, down from as much as 2.98 percentage points in February, the 25- delta risk reversal rate show.

“There isn’t really going to be a rate cut in the euro zone,” Christoph Kind, head of asset allocation at Frankfurt- based Frankfurt Trust, which manages about $20 billion, said on May 2. “This makes it at least a little bit attractive against other currencies like the Australian dollar.”

 

[Muthukali]

Aussie Falls Versus Peers, After Trade-Deficit Data

Australia’s dollar fell against all of its 16 major counterparts after the nation reported a larger- than-estimated trade deficit amid concern spending cuts by the government will damp economic growth.

The so-called Aussie was within 0.6 percent of this year’s low before Treasurer Wayne Swan announces the budget for the year starting July 1 later today. New Zealand’s dollar declined for a seventh day as Greek political leaders meet in a bid to form a new government, after an election raised questions about the country’s membership of the euro bloc.

“The factors that supported the Australian dollar are peeling away,” said Yoshisada Ishide, who manages Japan’s biggest mutual fund focusing on Australian dollar-denominated bonds at Daiwa SB Investments Ltd. in Tokyo. “Markets understand that Australia’s government can’t take stimulus measures and that it has to rely on monetary policy” to support growth.

The Aussie fell 0.3 percent to $1.0170 at 11:48 a.m. in Sydney after touching $1.0110 yesterday, the lowest since Dec. 29. The New Zealand dollar lost 0.2 percent to 79.28 U.S. cents.

Australia’s imports outpaced exports by A$1.587 billion ($1.61 billion) in March, the Bureau of Statistics said in Sydney today. The median estimate in a Bloomberg News survey of economists was for a deficit of A$1.3 billion.

Budget Surplus
The budget details will be announced at about 7:30 p.m. in Canberra. The governing Labor party, which trailed the opposition by 18 percentage points in the latest opinion poll, says a return to surplus will give the central bank room to lower borrowing costs in a nation where almost 90 percent of mortgages have variable rates.

“The budget is expected to be contractionary for economic growth,” said Emma Lawson, a currency strategist in Sydney at National Australia Bank Ltd. (NAB) “Over time, that may make it harder for Aussie to regain a move to the upside.”

In Greece, New Democracy leader Antonis Samaras said he failed to forge agreement to form a government after weekend elections. The attempt will now pass to Alexis Tsipras, the head of Syriza, the second biggest party, which has vowed to cancel bailout terms for the nation. Tsipras will see President Karolos Papoulias today at 2 p.m. Athens time.

 

[Muthukali]

Australian Dollar Falls Toward Parity on Greek Concern

Australia’s dollar fell to its weakest level this year and bond yields touched record lows as concern mounted that Greek leaders will be unable to form a coalition government, reducing appetite for riskier assets.

The so-called Aussie dropped versus all of its 16 major peers after Prime Minister Julia Gillard said the budget surplus her government has promised to deliver in the next fiscal year would provide scope for the central bank to cut interest rates. New Zealand’s currency, nicknamed the kiwi, is set to complete an eight-day drop in what would be its longest stretch of declines against the dollar since 2001 as Asian stocks extended a global rout.

“Risk is going to be on the back foot while the Greek squabbles continue,” said Joseph Capurso, a strategist in Sydney at Commonwealth Bank of Australia. (CBA) “I don’t have a lot of optimism that these things will be resolved quickly. It’s pulling down many currencies like the Aussie, the kiwi and the Canadian dollar, which are more linked to global growth.”

The Australian dollar fell to $1.0054, its lowest level since Dec. 29, before trading at $1.0060 at 2:05 p.m. in Sydney, 0.6 percent below yesterday’s close. It lost 0.8 percent to 80.23 yen.

Returning Australia’s budget to surplus will give the central bank “maximum room to move” in setting interest rates, Gillard said today in an interview with Bloomberg News. The Reserve Bank of Australia this month cut its benchmark rate by half a percentage point to 3.75 percent and investors are betting there is a more than 95 percent chance of another reduction in June.

Yields Slide
The yield on Australia’s 10-year note slid to a record 3.347 percent. The rate on the 15-year security dropped to 3.672 percent, the lowest for Australia’s longest-maturity issue, according to Bloomberg data going back to 1991.

New Zealand’s currency weakened 0.4 percent to 78.49 U.S. cents, poised for its longest losing streak since March 2001. The kiwi retreated 0.5 percent to 62.60 yen.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose 4 1/2 basis points to 2.515 percent. It fell to an all-time low of 2.46 percent on May 7, below the central bank’s official cash rate of 2.50 percent.

The MSCI Asia Pacific Index of shares fell 1.4 percent. The Standard & Poor’s 500 Index (SPX) of U.S. shares lost 0.4 percent yesterday.

Greek Concern
Both South Pacific currencies declined as bets increased that a left-leaning coalition in Greece may undo bailout accords. Alexis Tsipras, whose Syriza party placed second in Greek elections on May 6, said he would forge ahead with plans to form a coalition government of left-wing parties after he was handed the mandate by President Karolos Papoulias.

Tsipras said he wouldn’t agree to join forces with New Democracy and Pasok, the two Greek parties that have supported austerity measures in return for international funds. He called on the leaders of both parties to withdraw their pledges to impose the terms in writing by today when he is to meet with them to discuss forming a government.

The Aussie has lost 2.5 percent this year, the worst performance after the yen among the 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The kiwi gained 0.2 percent.

Australian Treasurer Wayne Swan said yesterday the nation’s underlying cash surplus will be A$1.54 billion ($1.55 billion) in the 12 months to June 30, 2013. Expenditures are forecast to fall to A$364.2 billion next year, the first drop in figures dating back to 1971. The A$44.4 billion deficit this year is the third-largest on record and is 3 percent of gross domestic product.

N.Z. Dollar
New Zealand’s dollar slid versus its U.S. and Japanese counterparts as central bank Governor Alan Bollard attributed its decline to falling commodity prices and weak economic indicators.

The decline “is presumably a response to a number of things, one of which is a risk-off environment in Europe and also a recognition of softer commodity prices and a few bits of soft data in Australia and New Zealand,” Bollard told reporters today. “It’s been moving in a direction that we would have thought is broadly in line with fundamentals.”

Bollard signaled on April 26 he may reassess the outlook for interest rates should the exchange rate stay strong. Investors are betting he may reduce borrowing costs as soon as next month. The New Zealand benchmark is currently at a record low 2.5 percent.

The Thomson Reuters/Jefferies CRB Index (CRY) of raw materials fell 0.8 percent yesterday.

 

[Muthukali]

Euro at 3-Month Low as Greek Concerns Weigh on Debt Sales

The euro slid to a three-month low before Italy, Spain and France sell bonds next week amid concern the region’s debt crisis is deepening.

The shared currency headed for a second weekly drop as Greek political leaders go into a fifth day of talks to form a government and before an official report forecast to show the euro region’s economy contracted for a second quarter. The dollar and the yen were poised to rise versus most major peers this week as concern Greece will be unable to stay in the euro bloc boosted demand for safer assets.

“We can’t become positive and buy the euro,” said Daisaku Ueno, a senior foreign-exchange and fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “Regardless of whether Greece exits the euro, it will take a lot of time to resolve the region’s debt crisis.”

The euro weakened to $1.2907, the lowest since Jan. 23, before trading at $1.2909 as of 10:38 a.m. in Tokyo, 0.2 percent lower than the close in New York. It’s poised for a 1.4 percent decline this week. The common currency slid 0.2 percent to 103.16 yen, set for a 1.3 percent drop since May 4. The dollar was little changed at 79.92 yen.

Italy will sell securities on May 14 maturing in 2015, 2020, 2022 and 2025, followed by Spanish and French debt sales on May 17. It will be the first French auction after Francois Hollande is sworn in as president on May 15.

Greek Politics
Greece’s political impasse following an inconclusive May 6 election has raised the possibility that another contest will have to be held as early as next month, threatening the implementation of austerity pledges. The standoff has reignited European concerns over Greece’s ability to hold to the terms of its two bailouts negotiated since May 2010 and stoked speculation the nation will have to leave the currency union.

Gross domestic product in the 17-nation euro area probably declined 0.2 percent in the first quarter from the prior three months when it slid 0.3 percent, according to the median estimate of economists in a Bloomberg News survey. The European Union’s statistics office will release the figures on May 15.

“The bottom of Europe’s economic slowdown has yet to be seen,” said Yuki Sakasai, a currency strategist in New York at Barclays Plc. “The euro will remain under downward pressure.”

The euro also weakened against the British pound, declining to as low as 79.97 U.K. pence, the least since November 2008.

Goldman Sachs Group Inc. cut its forecasts for the euro to $1.33 from $1.38 for the next six months and to $1.40 from $1.45 in 12 months, the New York-based company said in a note yesterday. Economic data suggest an expected rebound in the euro will be delayed further, Goldman Sachs said.

 

[Muthukali]

Pound Weakens as Drop in Consumer Confidence Boosts QE Outlook

The pound fell against the dollar, extending a second weekly decline, after an industry report showed U.K. consumer confidence dropped last month as the economy slipped into a double-dip recession.

Sterling slid for the first time in six days versus the euro as signs the economic outlook is worsening raised the prospect that Governor Mervyn King will hint at resuming bond purchases, or quantitative easing, when the central bank releases its Inflation Report next week. Gilts advanced before the Debt Management Office sells 2.5 billion pounds ($4.03 billion) of bills.

“The QE carrot is still dangling in front of the market should we get any more weak data,” said Kit Juckes, head of foreign-exchange research at Societe Generale SA in London. “We’ve made a step-adjustment down in sterling being the pick of non-euro currencies to put money in.”

The pound dropped 0.2 percent to $1.6120 at 10:50 a.m. London time, headed for a weekly loss of 0.3 percent. It fell to $1.6067 on May 9, the lowest level since April 20. Sterling weakened 0.3 percent to 80.34 pence per euro, after rising to 79.97 pence, the strongest since November 2008.

Nationwide Building Society said its index of consumer sentiment dropped to 44 from 53 in March. A gauge of Britons’ outlook for the economy fell to 60 in April from 73 in March, the Swindon-based company said. A measure of whether it’s a good time to make a major purchase declined to 75 from 86.

The surveys were conducted before a government report on April 25 showed the U.K. economy shrank for a second quarter in the three months through March.

‘Not Off the Table’
The Monetary Policy Committee left its bond-purchase program at 325 billion pounds yesterday amid concern inflation is quickening. Unlike the last time it halted quantitative easing in February 2010, it didn’t issue a statement.

“The suspicion is that more QE may not have happened, but it’s not off the table by any stretch of the imagination,” Juckes said. “The economy is still weak. We’ll see more when we see the Inflation Report” on May 16.

Sterling has appreciated 4.8 percent in the past three months, the best performer of the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 2.2 percent, and the euro was little changed.

Gilts Gain
The 10-year gilt yield dropped three basis points, or 0.03 percentage point, to 1.95 percent, after falling to a record 1.881 percent on May 9. The 4 percent bond due March 2022 rose 0.32, or 3.20 pounds per 1,000-pound face amount, to 118.20.

Gilts have lost 0.4 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. U.S. Treasuries gained 0.6 percent and German bunds returned 2.2 percent, the indexes show.

King may leave the door open to add more stimulus as a flare-up in Europe’s debt crisis and government spending cuts threaten to keep Britain’s recovery at bay, according to economists at Deutsche Bank AG and BNP Paribas SA.

“They’ll have no choice but to revise down their growth projections” in the Inflation Report, said George Buckley, an economist at Deutsche Bank in London. “They have a dilemma of high inflation and very weak growth, but you definitely can’t rule more QE out.”

David Tinsley, an economist at BNP Paribas in London, said the Inflation Report will present a “fairly dovish assessment” of the economy.

 

[Muthukali]

Dollar Bases for Rally Versus Yen, BofA Says

The dollar may be forming a base against the yen, a move that could spur a longer-term uptrend, according to Bank of America Corp.

A close above two-month resistance of 80.22 yen may be the first signal that the dollar is basing, or ending its decline, and gearing up to resume a bullish trend started in February, according to MacNeil Curry, head of foreign exchange and interest rates technical strategy at Bank of America in New York. Resistance refers to a chart area where sell orders may be clustered.

The U.S. currency has been moving in the opposite direction from declines in the Standard & Poor’s 500 Index and Treasury 10-year yields, a sign that the bearish dollar-versus-yen trend may be overrun.

“When markets don’t do what they should, it suggests that the pre-existing trend is exhausted,” Curry said in a telephone interview.

The dollar strengthened 0.4 percent to 80.18 yen yesterday in New York. It has increased 0.7 percent since May 9, compared to a 1.8 percent drop in the S&P 500 and 0.05 percentage point drop in 10-year yields.

If the dollar is able to base and gain to 84 yen, it could appreciate to the 85 to 88 level this year, Curry said. The dollar’s long-term bull trend may resume and see it appreciate to 101 or even 125 during the next two years if higher-yielding assets start rallying, Curry said.

“I’d like to see equities come back and I’d like to see commodities start to stabilize,” he said. “To see a good, sizeable move, you’d have to see risk come back a bit.”

In technical analysis, investors and analysts study charts of trading patterns to forecast changes in a security, commodity, currency or index.

 

[Muthukali]

Aussie Sets 2012 Low Amid Concern Greece May Leave Euro

Australia’s dollar declined to its weakest level this year as Greece’s failure to form a new government spurred speculation it may leave the euro area, sapping demand for riskier assets.

The so-called Aussie was near a four-month low against the yen as Asian stocks fell for a sixth-straight day, extending a global equities rout. The New Zealand dollar dropped for a fourth day after Auckland-based Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, said whole-milk powder prices continued their slide, falling to the lowest level in more than 2 1/2 years.

“It’s just a general bout of risk aversion around the globe,” said Derek Mumford, a director in Sydney at Rochford Capital, a currency risk management company. “It’s not just Greece, it’s the whole European situation. The Aussie is certainly under pressure.”

Australia’s dollar touched 99.17 U.S. cents, the weakest since Dec. 20, before trading at 99.26 as of 12:22 p.m. in Sydney, 0.1 percent lower than the close in New York yesterday. The currency bought 79.80 yen from 79.67 yesterday, when it touched 79.39, the lowest since Jan. 17. The New Zealand dollar lost 0.3 percent to 76.69 U.S. cents, after earlier sliding to 76.64, the least since Dec. 29. It was at 61.65 yen from 61.68.

Mumford predicts the Australian currency will drop as low as 97.50 U.S. cents within the next couple of weeks.

Greek Election
The MSCI Asia Pacific Index (MXAP) of stocks dropped 1.6 percent today. The MSCI World Index of developed market shares fell 0.9 percent yesterday.

Greek leaders will seek agreement today on an interim government that will schedule new elections as early as June 10, after President Karolos Papoulias failed to broker a governing coalition in meetings yesterday.

The new election will follow an inconclusive May 6 vote that boosted a political party opposed to Greece’s international bailout into second place. Public opinion polls say that party, Syriza, may come in first next time, complicating Greece’s efforts to avoid running out of cash by early July.

Elsewhere in Europe, investor concern over Spain’s ability to reduce its budget shortfall has increased since Prime Minister Mariano Rajoy announced in March that the country will miss a 2012 deficit goal set by the European Union. Spanish 10- year yields this week climbed as high as 6.36 percent, the most since Nov. 30.

Milk Prices
In New Zealand, Fonterra said milk powder for July delivery fell 9.6 percent from the May 1 sale to the lowest price since August 2009, according to a trade-weighted index. The near-term contract fell for the 11th straight auction to $2,488 a metric ton, the company said on its GlobalDairyTrade website.

The results “only add to the evidence suggesting next season’s Fonterra dairy payout will be considerably lower than the season just ending,” Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington, wrote in a research note.

Demand for Australia’s currency was also limited after a private survey showed the nation’s consumer confidence was little changed near the lowest level this year as concern about the global outlook countered the boost provided by this month’s decision by the country’s central bank to lower borrowing costs.

The sentiment index for May rose 0.8 percent to 95.3, a Westpac Banking Corp. (WBC) and Melbourne Institute survey taken May 7-11 of 1,200 consumers showed today in Sydney. From a year earlier, confidence is down 8.3 percent.

 

[Muthukali]

Pound Reaches 3 1/2-Year High Versus Euro on Greek Vote

The pound strengthened to a 3 1/2- year high against the euro as Greek political party leaders meeting in Athens today failed to form a government, meaning new elections will be needed.

Gilts snapped a two-day advance after growth in Germany helped the economy of the 17-nation currency bloc avoid joining Britain in a double-dip recession. Sterling weakened against the dollar as a U.K. report showed the trade deficit narrowed less in March than economists forecast.

“Once again sterling is looking likely to close on the day higher against the euro,” said Lee McDarby, head of dealing on the corporate and institutional treasury desk at Investec Bank Plc in London. “The sustained bout of sterling pressure against the euro has been fairly incessant over the past six weeks and looks likely to continue until euro-zone woes quieten down or the pound runs out of steam.”

The pound was little changed at 79.68 pence per euro at 5:03 p.m. London time after appreciating 0.1 percent to 79.60 pence, the strongest level since November 2008. The U.K. currency declined 0.4 percent to $1.6022. It earlier dropped to $1.6011, the lowest level since April 19.

Sterling has appreciated 4.1 percent in 2012, the best performer of the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, as Europe’s sovereign debt crisis spurred demand for U.K. assets as a haven. The dollar gained 0.6 percent and the euro fell 1.1 percent.

‘Adverse Conditions’
Greece “is once again headed to elections in a few days under adverse conditions,” Evangelos Venizelos, the leader of the socialist Pasok party, said after Greek President Karolos Papoulias failed to broker the creation of a government at a meeting with party leaders.

The yield on the 10-year gilt climbed two basis points, or 0.02 percentage point, to 1.90 percent, after declining to a record 1.86 percent yesterday. The 4 percent bond due in March 2022 dropped 0.175, or 1.75 pounds per 1,000-pound face amount, to 118.765.

The U.K. sold 2.75 billion pounds of 5 percent bonds due in March 2025 today. The debt was sold at an average yield of 2.251 percent, compared with 2.356 percent at a previous auction of the securities on Feb. 1.

Germany’s gross domestic product grew 0.5 percent last quarter from the previous three months, when it fell 0.2 percent, the Federal Statistics Office said in Wiesbaden. GDP in the euro region stagnated, the European Union’s statistics office in Luxembourg said. The median forecast of economists surveyed by Bloomberg was for a 0.2 percent contraction.

The U.K. economy fell into its second recession since 2009 in the first quarter.

Britain’s trade deficit shrank to 8.56 billion pounds in March from a revised 8.59 billion pounds in February, the Office for National Statistics said. Economists surveyed by Bloomberg News forecast a reduction to 8.4 billion pounds.

Gilts have gained 0.4 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. U.S. Treasuries rose 1.1 percent, and German bunds returned 2.7 percent.

 

[Muthukali]

Aussie, N.Z. Dollars Rise on Bets Recent Losses Excessive

The Australian and New Zealand dollars rebounded from five-month lows amid speculation their recent declines were excessive.

The currencies rose versus the majority of their peers as Asian stocks headed for their first advance in seven days on prospects the Federal Reserve will ease policy further to spur growth. Gains in the so-called Aussie and kiwi were limited as Greece prepares for a second election with the nation’s future in the euro bloc and an international bailout at stake.

“The Australian and New Zealand dollars have fallen too rapidly and we’re seeing some buying back in these currencies,” said Junichi Ishikawa, an analyst in Tokyo at IG Markets Securities Ltd. “Further stimulus from the Fed will be positive for the stocks and commodity markets, and thus for the currencies like the Aussie and kiwi.”

Australia’s dollar added 0.2 percent to 99.34 U.S. cents at 12:59 p.m. in Sydney from the close in New York yesterday, when it fell to 98.71, the weakest since Dec. 15. The currency bought 79.77 yen from 79.64. The New Zealand dollar rose 0.2 percent to 76.59 U.S. cents, after sliding to 76.24 yesterday, the least since Dec. 20. It was at 61.50 yen from 61.40.

The Australian dollar’s 14-day relative strength index against its U.S. counterpart was 29 today, below the 30 level that some traders see as signaling an asset may reverse declines. The gauge for New Zealand’s currency fell to 22.

The MSCI Asia Pacific Index (MXAP) of stocks advanced 0.2 percent.

FOMC Minutes
A loss of momentum in U.S. growth or increased risks to their economic outlook could warrant additional action to keep the recovery on track, several Fed policy makers said, according to minutes of the Federal Open Market Committee’s April 24-25 meeting released yesterday in Washington.

Yields on Australia’s benchmark 10-year notes added three basis points, or 0.03 percentage point, to 3.25 percent today, after touching a record low of 3.201 percent on May 15. Three- year yields rose three basis points today to 2.59 percent.

Gains in the South Pacific nation currencies were limited after the European Central Bank said yesterday it will temporarily stop lending to some Greek banks to contain its risk.

The move comes after ECB President Mario Draghi acknowledged for the first time that Greece could leave the monetary union. While the bank’s “strong preference” is that Greece stays in the 17-nation euro area, the ECB will continue to preserve “the integrity of our balance sheet,” he said in a speech in Frankfurt yesterday.

Greek Election
Greece faces a fresh election on June 17 that may boost parties opposed to the conditions of its international bailouts, raising the specter of its exit.

“The markets are looking at a complete reversal of all the plans put in place towards the end of last year” in Europe, said Kara Ordway, a currency strategist at City Index Asia Pacific in Sydney. Greece’s possible exit from the euro is “really dragging the market. If this environment continues, certainly the Aussie and kiwi will go lower,” Ordway said.

The New Zealand dollar has weakened 5.5 percent in the past three months, making it the worst performer, according to Bloomberg Correlation-Weighted Indexes which track 10 developed- nation currencies. Australia’s currency depreciated 4.6 percent, the second-worst performer.

 

[Muthukali]

Euro Touches 4-Month Low After Fitch Downgrades Greece

The euro touched a four-month low, extending declines to a third-straight week, amid concern Europe’s sovereign-debt crisis is worsening.

The 17-nation currency was 0.2 percent from a three-month low versus the yen after Fitch Ratings downgraded Greece’s long- term credit rating to CCC from B-, citing heightened risk that the nation may not be able to sustain membership in the monetary union. The euro also fell as rising borrowing costs in Spain spurred speculation the crisis is spreading from Greece. Japan’s currency rose against all of its most-traded peers this week as Asian stocks extended a global equity rout.

“The market’s very concerned about contagion and Spain probably being the biggest focus of attention after Greece,” said Thomas Averill, managing director in Sydney at Rochford Capital, a currency and interest-rate risk-management company. “If the euro breaks $1.26, there’s probably not a lot of stops going to the lows that we saw in 2010.”

The euro touched $1.2666, the weakest since Jan. 17, before trading at $1.2695 at 9:31 a.m. in Tokyo, little changed from yesterday’s close. The shared currency bought 100.80 yen from 100.68 yen yesterday, when it fell to 100.56, the lowest since Feb. 7. The yen fetched 79.39 per U.S. dollar from 79.28.

The euro has fallen 1.7 percent since May 11, set for its third weekly loss, the longest string of declines since Jan. 13. Against the yen, it has dropped 2.4 percent.

The MSCI Asia Pacific Index (MXAP) of shares slumped 1.6 percent. The Standard & Poor’s 500 Index slid 1.5 percent to a four-month low yesterday. The Stoxx Europe 600 Index fell 1.1 percent.

Greek Rating Cut
The Greek rating cut came as leaders began campaigning ahead of the second national vote in six weeks.

“The strong showing of ‘anti-austerity’ parties in the May 6 parliamentary elections and subsequent failure to form a government underscores the lack of public and political support” for the country’s bailout from the European Union and International Monetary Fund, Fitch said in a statement yesterday. The ratings company also revised Greece’s ceiling to B-, according to the statement.

In Spain, the cost of insuring against a default jumped to a record after the nation sold January 2015 bonds at an average yield of 4.375 percent, compared with 2.89 percent when they were last auctioned in April. Investors bought debt maturing in July 2015 at 4.876 percent, compared with 4.037 percent on May 3 and bonds due April 2016 at 5.106 percent.

Spanish CDS
Spanish credit-default swaps climbed 12 basis points to 552 yesterday, the highest according to data compiled by Bloomberg going back to 2004.

Moody’s Investors Service lowered the credit ratings of 16 Spanish banks yesterday, including Banco Santander SA (SAN), citing economic weakness and the government’s mounting budget strain. The reductions followed Moody’s May 14 downgrade of 26 Italian banks and its Feb. 13 cut of Spain’s sovereign debt.

The euro has lost 5.4 percent in the past year, the second- worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen was the biggest gainer, having advanced 8.7 percent.

In the U.S., a report from the Federal Reserve Bank of Philadelphia yesterday showed the general economic index fell to minus 5.8 this month, the lowest reading since September, from 8.5 in the previous month. That compares with a forecast of a rise to 10 in a Bloomberg News survey. Readings less than zero signal contraction in the area covering eastern Pennsylvania, southern New Jersey and Delaware.

“The global market remains nervous,” said Kikuko Takeda, a London-based senior currency economist at Bank of Tokyo Mitsubishi UFJ Ltd. “We can’t buy the euro, and if the U.S. economic outlook is uncertain, yen will be bought.”

 

[Muthukali]

Aussie, N.Z. Dollars Fall Versus Yen as Europe Woes Damp Demand

The Australian and New Zealand dollars weakened against the yen as stocks dropped and concern increased the euro-zone debt crisis is escalating, damping demand for higher-yielding assets.

The South Pacific nations’ currencies slumped after Spain’s borrowing costs rose at an auction, increasing bets that the region’s financial contagion is spreading from Greece. The currencies rose against the U.S. dollar on speculation recent declines were overdone.

Australia’s dollar dropped 1.3 percent to 78.39 yen yesterday in New York and reached 78.37, the lowest level since Jan. 9. The Aussie weakened 0.3 percent to 98.88 U.S. cents, extending its drop this month to 5.2 percent.

The kiwi, as New Zealand’s dollar is known, weakened 1.5 percent to 60.51 yen, falling to 60.48, the lowest since Jan. 10. The currency declined 0.1 percent to 76.33 U.S. cents, adding to a 6.8 percent drop this month.

The Standard & Poor’s 500 Index (SPX) fell 1.5 percent, extending its losing streak to five days.

Spain sold bonds due in January 2015 at an average yield of 4.375 percent, compared with 2.89 percent when they were last auctioned in April. Investors bought bonds maturing in July 2015 at 4.876 percent, compared with 4.037 percent on May 3 and bonds due April 2016 at 5.106 percent.

The cost of insuring against a Spanish default rose to a record, with credit-default swaps on the nation’s bonds jumping 13 basis points to a record 553, according to data compiled by Bloomberg.

Borrowing costs in Europe’s most-indebted nations are rising amid speculation that Greece will leave the 17-nation euro area as political parties opposed to the terms of two international bailouts polled strongly. A fresh vote has been set for June 17.

 

[Muthukali]

Euro Drops Versus Dollar, Yen on Greece Crisis Contagion Concern

The euro fell for a third week against the dollar, reaching a four-month low, after the failure of Greek leaders to form a government increased concern the debt crisis may spread to other nations in the monetary union.

The 17-nation currency dropped for a fourth week against the yen as investors await a June 17 election in Greece and amid a Group of Eight nations’ leaders meeting that began yesterday. Higher-yielding currencies, including Brazil’s real, slumped as increased concern about the euro crisis damped demand for risk. The yen rose to a three-month high against the greenback before a Bank of Japan meeting May 23.

“Given the recent past for Greece, investors are going to remain skeptical ahead of that mid-June election,” said Joe Manimbo, a market analyst in Washington at Western Union Co.’s Western Union Business Solutions unit. “We could see continued political discord in Greece, something that would only increase worries about the debt crisis and likely keep borrowing costs for nations like Spain and Italy elevated.”

The euro lost 1.1 percent to $1.2780, falling to $1.2642, the weakest since Jan. 16. It has dropped 3.5 percent so far this month. The shared currency weakened 2.2 percent to 100.98 yen, the most since the period ended April 6. The Japanese currency appreciated 1.2 to 79.02 per dollar and touched 79.00, the strongest since Feb. 17.

Brazil’s real was among the worst-performing major currencies as the central bank auctioned currency swaps for the first time since March. It weakened 2.8 percent against the dollar to 2.0238, the first time it traded above 2 since 2009.

Greece Downgrade
Fitch Ratings lowered Greece’s credit rating to CCC from B- on May 17, saying the strong showing of “anti-austerity” parties in elections on May 6 and subsequent failure to form a government underscored the lack of public and political support for the country’s bailout from the European Union and International Monetary Fund.

A caretaker government was appointed this week after President Karolos Papoulias failed to broker a governing coalition among the major parties that won the elections earlier this month. The deadlock in Greece has sparked uncertainty over the country’s spending cuts required by the terms of its two bailouts worth 240 billion euros ($307 billion) negotiated since May 2010.

An opinion poll yesterday showed the New Democracy party ahead of Syriza, the main party opposed to implementing terms of the international rescue. Pasok came in third place.

‘So Much Oversold’
“Greece still weighs on risk foreign exchange,” said Boris Schlossberg, director of research at online currency trader GFT Forex in New York. “We’ve come to a point where it is so much oversold that even a morsel of good news could pop it higher. The euro is vulnerable to a rally.”

Hedge funds and other large speculators increased their bets on a weaker euro to 173,869 in the week ended May 15, the highest since the common currency’s inception in 1999, according to Commodity Futures Trading Commission data.

German Chancellor Angela Merkel and fellow European leaders will face pressure from their G-8 counterparts to do more to quell the turmoil after speculation Greece will exit the euro wiped almost $4 trillion from global stock markets this month.

The European Central Bank said it will temporarily stop lending to some Greek banks, with President Mario Draghi indicating it won’t compromise to keep Greece in the euro area. Draghi acknowledged for the first time this week that Greece may exit. While the bank’s “strong preference” is that Greece stays in the bloc, the will continue to preserve “the integrity of our balance ECB sheet,” he said in a speech.

Sterling, Loonie
Gross domestic product in the nations of the monetary union stagnated in the first quarter compared with the prior three months, the European Union’s statistics office said. The median forecast of economists surveyed by Bloomberg was for a 0.2 percent decline.

The pound fell against the euro, after earlier touching 79.51 pence, the strongest since November 2008, as the Bank of England said U.K. growth will stay “subdued” in the near term. Central bank Governor Mervyn King said the U.K. faced threats from the euro region’s “storm” as he released the quarterly Inflation Report in London.

Sterling fell 0.5 percent to 80.78 pence per euro and lost 1.6 percent to $1.5817.

Canada’s dollar and Mexico’s peso fell against the dollar after the weaker-than-expected U.S. data diminished investor appetite for risk. The U.S. is Canada’s and Mexico’s largest trade partner.

The loonie, as Canada’s dollar is known, fell 2.1 percent to C$1.0222 against the greenback and the peso lost 1.8 percent to 13.8158 per dollar.

Fed’s View
The Federal Reserve Bank of Philadelphia’s general economic index decreased to minus 5.8 in May from 8.5. Economists forecast the gauge would rise to 10, according to the median estimate in a Bloomberg News survey. Another central bank survey showed that manufacturing in the New York region accelerated more than forecast, rising to 17.1 this month from 6.6 in April.

Several Fed policy makers said a loss of momentum in growth may warrant more stimulus to keep the recovery on track, according to minutes of the Federal Open Market Committee’s April 24-25 meeting released May 16 in Washington. Central bankers last month affirmed their plan to hold interest rates near zero at least through late 2014 as they sought to push down an unemployment rate that has stayed above 8 percent for more than three years.

The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, rose 1 percent to 81.089. It gained for 14 straight days through May 17, the longest winning streak since its inception in 1973.

‘Long Yen Exposure’
The implied volatility of three-month options on Group of Seven nations’ currencies rose to as high as 11.59 percent, the highest since Jan. 6, according to a JPMorgan Chase & Co. index. The measure has averaged 11.6 percent over the past year. Greater volatility makes investments in currencies with higher benchmark lending rates less attractive because the risk in such trades is that market moves will erase profits.

Japan’s Finance Minister Jun Azumi said May 17 Japan will take appropriate steps if needed in the foreign-exchange market. The BOJ, which sold yen in the currency market as recently as November, will meet May 23. The central bank intervened in the market after the yen surged to a post-World War II record of 75.35 per dollar in October.

The BOJ this week failed to find enough government securities to buy as part of its stimulus program. The shortfall increased concern it may have to broaden its asset-purchase program to encompass longer-dated debt or other types of assets.

“The market is slowly, almost reluctantly, being forced to build some long yen exposure,” said Alan Ruskin, global head of Group-of-10 foreign-exchange strategy at Deutsche Bank AG in New York.

Futures traders decreased the number of short yen positions to 34,315 from 41,093.

 

[Muthukali]

Euro Is Near 22-Month Low After European Summit

The euro was 0.2 percent from the lowest level since July 2010 after German Chancellor Angela Merkel said following a European Union summit that her nation stands by its opposition to jointly issued common bonds.

The 17-nation currency maintained a drop versus the yen before data forecast to show Europe’s services and manufacturing industries shrank for a fourth month. The Japanese and U.S. currencies remained higher after gaining yesterday against most major counterparts on increasing demand for haven assets amid Europe’s deepening debt crisis. New Zealand’s dollar halted a two-day slide as the nation reported an increased trade surplus.

“The euro remains in a bearish trend,” said Callum Henderson, global head of currency research in Singapore at Standard Chartered Plc. “There needs to be a greater focus on growth, but at the same time, there also has to be a credible long-term plan for fiscal and debt consolidation throughout the region. At the moment, you have neither” for Europe, he said.

The euro was at $1.2576 as of 10:45 a.m. in Tokyo from $1.2582 at the close in New York yesterday, when it touched $1.2545, the least since July 13, 2010. The common currency traded at 99.93 yen after losing 1.4 percent to 100 yen yesterday. The dollar was little changed at 79.46 yen.

Merkel laid out the German position that “much stronger economic cooperation” in the region is needed before euro bonds can be issued, speaking to reporters in Brussels after the summit. European Council President Herman Van Rompuy said leaders are not under any pressure to introduce euro bonds.

Hitting an Iceberg
Luxembourg Prime Minister Jean-Claude Juncker said he didn’t ask the 17 members of the currency bloc to prepare contingency plans for the possibility of Greece leaving the euro. An inconclusive May 6 ballot in Greece raised speculation it will scuttle austerity measures imposed upon the nation after two bailouts and have to leave the euro. New elections loom on June 17.

“Looking at Europe’s situation, I can’t help thinking of the Titanic,” said Noriaki Murao, managing director of the marketing group in New York at the Bank of Tokyo-Mitsubishi UFJ Ltd. “The euro, like the Titanic, has crashed into an iceberg. It’s being inundated with water, but passengers are ignoring it, eating dinner and listening to music as though nothing has happened.”

A euro-area composite index based on a survey of purchasing managers in manufacturing and service industries probably fell to 46.6 this month from 46.7 in April, according to the median estimate of economists surveyed by Bloomberg News. A reading below 50 indicates contraction. London-based Markit Economics will release the figure today.

Dollar Strength
The dollar gained 4.5 percent over the past month, Bloomberg Correlation-Weighted Indexes show, as investors sought the safest assets. The yen, the best performer among the 10 developed-nation currencies tracked by the indexes, has added 7.3 percent, while the euro lost 0.9 percent.

“It seems likely that the dollar will be reasonably well bid,” said Michael Turner, an economist at RBC Capital Markets Ltd. in Sydney. “People are concerned about what the implications of a Greece exit from the euro zone might be. That’s feeding into broader concerns about the banking sector and against this backdrop, the real economies are struggling pretty badly.”

Demand for the New Zealand and Australian dollars was bolstered amid speculation their declines in the past two days were excessive. New Zealand’s statistics office today said the nation’s exports exceeded imports by NZ$355 million ($267 million) last month from a revised NZ$186 million in March.

“The markets have been excessively pessimistic,” said Kengo Suzuki, a foreign-exchange strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank by market value. There has been some buying because the South Pacific currencies have been dropping too rapidly, he said

New Zealand’s dollar rose 0.2 percent to 75.16 U.S. cents after touching 74.57 yesterday, the lowest since Nov. 28. The Australian currency climbed 0.1 percent to 97.60 U.S. cents after falling as low as 96.90 yesterday, a level unseen since Nov. 25.

 

[Muthukali]

Asian Currencies Drop a Fourth Week as EU Crisis Hurts Exports

Asian currencies headed for a fourth weekly drop, the longest stretch of losses this year, on speculation Europe’s debt crisis will stall the global economic recovery and hurt demand for the region’s exports.

Official reports this week showed China’s manufacturing probably contracted for a seventh month in May, Taiwan’s overseas shipments and factory output declined, and Malaysia grew at the slowest pace last quarter since June. India’s rupee reached a record low even after the central bank took measures to boost dollar supply to alleviate pressure on the currency.

“You still have massive problems in Europe and there are a lot of concerns about the slowdown in China,” said Thomas Harr, the Singapore-based head of Asian foreign-exchange strategy at Standard Chartered Plc. “There’s pressure on all Asian currencies at the moment.

India’s rupee declined 2.2 percent this week to 55.655 per dollar as of 9 a.m. in Mumbai, according to data compiled by Bloomberg. The Philippine peso weakened 1.4 percent to 43.87, Thailand’s baht lost 1.1 percent to 31.69 and China’s yuan slipped 0.3 percent to 6.3474.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-traded currencies excluding the yen, dropped 0.6 percent this week and touched 114.24 yesterday, the lowest level since Dec. 15. Funds based abroad pulled $1.5 billion from equity markets in Taiwan, South Korea, Indonesia and Thailand in the first four days of this week, exchange data show.

China Lending
China’s biggest lenders may miss their loan targets for the first time in at least seven years as the slowdown crimps credit, according to three bank officials with knowledge of the matter, who declined to be identified because they aren’t permitted to speak publicly.

Banks’ total new loans for 2012 will be about 7 trillion yuan ($1.1 trillion), less than the government goal of 8 trillion yuan to 8.5 trillion yuan, said one of the officials.

Greece is heading for a second election on June 17 after an inconclusive vote this month ignited concern it may quit the euro. European leaders urged Greece to stick with austerity measures needed to stay in the single currency at a summit in Brussels that ended yesterday. They are also discussing issuing euro-area bonds to contain the debt crisis, a plan that’s met opposition from Germany.

“The downside risks to China’s growth are greater now as European leaders can’t make progress on solving their debt problems,” said Stella Lee, president of Success Futures & Foreign Exchange Ltd. in Hong Kong. “The weak loan growth and the uncertainty in Europe are going to put yuan appreciation to a halt.”

India Currency Measures
The rupee fell to a record low of 56.3875 per dollar yesterday, prompting central bank Governor Duvvuri Subbarao to say policy makers will take the required steps to curb swings in the exchange rate.

The Reserve Bank of India curbed trading in currency derivatives this month to rein in volatility. It also moved to boost the supply of dollars by cutting the amount of overseas earnings companies can hold in foreign currency to 50 percent from 100 percent.

“Investors are risk-averse and stock markets and Asian currencies can still test the weaker side,” said Nalin Chutchotitham, a Bangkok-based analyst at Kasikornbank Pcl.

Elsewhere, South Korea’s won fell 1 percent this week to 1,184.20 per dollar, a level last reached in October. Malaysia’s ringgit dropped 1.1 percent to 3.1695 and earlier touched 3.1736, the lowest since Jan. 3. Taiwan’s dollar and Indonesia’s rupiah were little changed at NT$29.632 and 9,360, respectively.

 

[Muthukali]

Pound Falls for 4th Week Versus Dollar on BOE Specultion

The pound declined for a fourth week against the dollar, the longest run of losses since September, amid speculation the Bank of England will restart its program of asset purchases to spur growth.

Gilts advanced for a fifth week, with two-, five- and 10- year yields dropping to records, as government reports showed gross domestic product shrank more than initially estimated and retail sales declined. U.K. bonds rallied as minutes of the Bank of England’s May 10 meeting showed the Monetary Policy Committee’s decision to halt its 325 billion-pound ($510 billion) bond-purchase program was “finely balanced.”

“I have flipped from pound bull to pound bear,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “Quantitative easing back on the table and the June MPC meeting may prove seismic.”

The pound depreciated 1.1 percent this week to $1.5648 at 4:51 p.m. London time yesterday, after sliding to $1.5631, the lowest level since March 13. Sterling advanced 1 percent over the five days to 79.99 pence per euro.

Minutes of the Bank of England’s meeting released on May 23 showed the central bank thought there was a case for it to resume stimulus, and it could do so if needed. Still, only one of the nine-member MPC voted to add to quantitative easing at the gathering.

“An exceptionally expansionary monetary policy” is appropriate to address risks of permanent damage to the economy and higher unemployment, MPC member David Miles said in a May 24 speech in London.

Gilts Gain
The 10-year gilt yield fell seven basis points, or 0.07 percentage point, this week to 1.75 percent. The 4 percent bond due March 2022 gained 0.67, or 6.70 pounds per 1,000-pound face amount, to 120.10. The yield dropped to 1.738 percent on May 24, the lowest since Bloomberg began compiling data on the securities in 1989.

The five-year yield fell to a record 0.707 percent yesterday, and the two-year yield declined to an all-time low of 0.21 percent.

GDP shrank 0.3 percent in the first quarter, more than the 0.2 percent drop estimated last month, the Office for National Statistics said May 24. Retail sales including auto fuel declined 2.3 percent from March, the office reported May 23.

Sterling dropped 0.1 percent this week, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar gained 1.1 percent, and the euro weakened 0.9 percent.

Gilts have returned 3 percent in May, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 2 percent, and U.S. Treasuries rose 1.3 percent.

 

[Muthukali]

Baht loss biggest of 2012

The baht had its biggest weekly drop in 2012 as foreign funds reduced holdings of local stocks amid concern that Europe's debt crisis will slow global economic growth.

The currency fell for a fourth week as global investors sold nearly 7.3 billion baht more worth of local stocks than they bought in the past five days, data from the Stock Exchange of Thailand showed.

The SET Index finished the week down 1.9% from the previous Friday, its third successive weekly decline.

"Investors are risk-averse and stock markets and Asian currencies can still test the weaker side,” said Nalin Chutchotitham, an analyst at Kasikornbank.

"Importers may be buying the dollar as well because month-end demand is usually high and also because they are worried that the dollar may rise further."

The baht was trading late Friday in Bangkok at 31.66/68 to the dollar,compared with 31.57/59 on Thursday and down 1.1% for the week, the most since the week of Dec 12-16.

The yield on the 3.25% government bond due in June 2017 rose five basis points to 3.56% this week, according to data compiled by Bloomberg.