Euro Weakens Before French Confidence Data; N.Z. Dollar Falls
Oct. 25 (Bloomberg) -- The euro fell, snapping a five-day gain against the dollar and yen, before a report that economists say will show French consumer confidence deteriorated.
The 17-nation currency weakened against a majority of its most-traded counterparts before a summit of European leaders tomorrow to resolve the region's debt crisis. The Dollar Index held onto a drop from yesterday after Federal Reserve Bank of New York President William C. Dudley said the central bank may do more to hold down borrowing costs. New Zealand's currency fell against all major peers on data showing slowing inflation.
"Europe's debt crisis will take five to 10 years to resolve, so even if something comes out of tomorrow's summit, it doesn't mean all the problems will disappear all at once," said Daisuke Karakama, a market economist in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's third-biggest listed bank. "I'm bearish on the euro."
The euro sank 0.3 percent to $1.3891 at 6:43 a.m. in London. The common currency slid 0.3 percent to 105.70 yen. The greenback was little changed at 76.10 yen.
A gauge of French consumer confidence declined to 78 in October, the least since December 2008, according to economist estimates before today's report from national statistics office Insee.
Recession Concerns
"The euro zone will turn to a recession in 2012," said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. "Everybody is tightening their belts at the same time in Europe, so we can't really be surprised by numbers that are pointing to recession."
German lawmakers are due to convene in Berlin today to begin scrutiny of two leveraging models for Europe's bailout fund. The first would raise the European Financial Stability Facility's capacity by insuring a fraction of countries' funding requirements, a European Union document showed. The second combines capital from European and non-European public and private investors, according to the draft.
The extent to which the fund is leveraged can only be ascertained after discussions with investors and rating companies, the document said.
New Zealand's dollar, known as the kiwi, lost 0.5 percent to 80.37 U.S. cents, snapping three days of gains.
Consumer prices in the South Pacific nation increased 0.4 percent in the third quarter from the previous three months, when they rose 1 percent, Statistics New Zealand said today.
'Negative Surprise'
"This is quite a negative surprise for the kiwi currency, and it's quite a significant negative surprise to the Reserve Bank," said Imre Speizer, a strategist in Auckland at Westpac, Australia's second-largest lender. "It has a downward risk to their interest-rate track and interest rates in the short end should fall on this, which should weigh on the kiwi dollar."
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against peers including the euro and yen, was little changed at 76.172 after a 0.2 percent drop yesterday.
Dudley said yesterday that the Fed hasn't "run out of bullets" and that it has additional stimulus options, including extending its commitment to keep interest rates low and embarking on a third round of asset purchases.
"Once concern over Europe's debt crisis recedes, the market focus will probably shift to whether the Fed will embark on another round of quantitative easing," said Kengo Suzuki, manager of the foreign-bond department in Tokyo at Mizuho Securities Co. "The bias is for the dollar to be sold."
Intervention Speculation
The yen was 0.4 percent away from a record high of 75.82 against the dollar after Japanese Finance Minister Jun Azumi said the government is ready to take action on the currency if necessary.
Japan sold yen three times since September last year as the currency's continued strength threatened to derail an export- driven economic recovery. The government has said it will bolster funds that can be used to intervene in the currency market.
The yen has appreciated 11 percent over the past six months, the best performance among the 10 developed-nation peers tracked by Bloomberg Correlation-Weighted Currency Indexes.
"Japan's authorities should be prepared to intervene in the market," said Mizuho's Suzuki.
India's rupee gained for a second day after the central bank boosted borrowing costs, increasing the yield appeal of the nation's assets.
The Reserve Bank of India raised its repurchase rate by 25 basis points to 8.5 percent today. Eighteen of 28 economists in a Bloomberg News survey predicted the decision and the rest forecast no change.
The rupee strengthened 0.2 percent to 49.7000 per dollar.
To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net Monami Yui in Tokyo at myui1@bloomberg.net .
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net .
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