Euro Falls to Four-Week Low Versus Dollar on Italy; Yen Gains
Nov. 9 (Bloomberg) -- The euro slid to a four-week low versus the dollar as Italian bond yields climbed to euro-era records after a firm raised the deposits it demands for clearing the nation's securities, intensifying Europe's debt crisis.
The shared currency fell to a two-week low versus the yen on concern Italy will join Greece in struggling to form a new regime strong enough to implement austerity measures. The dollar rose as U.S. 10-year note yields declined the most in a week as demand for refuge surged. South Africa's rand tumbled after Moody's Investors Service lowered its outlook on the nation's sovereign debt rating. Stocks plunged.
"The main driver was the move up in Italian yields, and that created a broad-based sentiment of risk aversion through the market, and that sent equities lower and the dollar higher across the board," said Matthew Perrier, Toronto-based director of foreign exchange at Bank of Montreal.
The euro slumped 1.8 percent to $1.3589 at 12:26 p.m. New York time and touched $1.3553, its lowest level since Oct. 10. It weakened 1.7 percent to 105.70 yen and touched 105.32, the least since Oct. 26. The yen was little changed at 77.76 per dollar after earlier touching 77.54, its strongest level since Oct. 31, when it set a post-World War II record of 75.35.
"The euro may find a little bit of support in the mid- $1.35s, but it depends how far the market wants to push it and whether or not we see any concrete news out of Europe to try to stem this," Perrier said.
Agreement in Greece
The 17-nation currency remained lower versus the dollar as Greek Prime Minister George Papandreou said in Athens his country's two biggest political parties reached agreement on the creation of a national unity government after three days of talks. Papandreou will step down. He didn't disclose the name of the new prime minister.
LCH Clearnet SA announced the changes to its margin requirements on Italian government-debt on its website.
Italian Prime Minister Silvio Berlusconi said yesterday he'll resign once parliament passes an austerity bill that's yet to be written. He said today he favors early elections.
Italy's Treasury said in an e-mailed statement it will go ahead with a sale of one-year bills tomorrow. It plans to sell as much as 5 billion euros ($6.8 billion) of the securities.
The yield on Italy's two-year notes rose above the rate on 10-year bonds. Yields on two-, five- and 10-year securities rose above the 7 percent level that drove Greece, Ireland and Portugal to seek international bailouts.
May Fall Further
The euro is poised to fall to as low as $1.2950, according to Citigroup Inc., citing technical analysis. The shared currency formed a so-called double-top within a bear flag, a pattern indicating it's set to plunge, analysts led by Tom Fitzpatrick, chief technical analyst in New York, wrote in a client note today. A breach of the $1.3580 level would suggest a move to below $1.30, they wrote.
The yen strengthened against most of its major peers as traders sought a haven. The Japanese currency and yen- denominated bonds were the most-sought assets today, according to Bank of New York Mellon Corp.
"Our iFlow FX indicators confirm the Japanese yen is the strongest net-bought currency across the board amidst yet another spike in risk aversion," said Samarjit Shankar, a managing director for the foreign-exchange group in Boston at the firm, the world's largest custodial bank. "Our iFlow bond indicators show Japanese government bonds are the strongest net- bought across the board, while net buying of U.S. Treasuries has also accelerated as portfolio managers unwind riskier exposure and reduce leverage."
Export-Reliant Economy
The yen tends to gain because Japan's export-reliant economy doesn't need foreign capital to balance current accounts -- the broadest measure of trade while the greenback tends to strengthen during periods of financial stress due to its status as the world's reserve currency.
The dollar appreciated 6.3 percent over the past three months, the best performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Currency Indexes. The yen strengthened 3.3 percent and the euro advanced 0.3 percent.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners climbed 1.3 percent to 77.630.
Yields on U.S. 10-year notes dropped as much as 15 basis points, the biggest intraday decline since Nov. 1, to touch 1.93 percent, according to Bloomberg Bond Trader prices. A basis point is 0.01 percentage point.
The Standard & Poor's 500 Index fell 2.3 percent.
Rand Weakens
South Africa's rand dropped 2.2 percent to 8.0040 per dollar after Moody's reduced the outlook on the nation's A3 rating on long-term foreign-currency and local-currency debt, the fourth-lowest investment grade. It cited deficit and growth concerns.
The New Zealand and Australian dollars weakened after China's statistics bureau said producer prices rose 5 percent in October from a year earlier, less than any of 24 analyst forecasts in a Bloomberg survey. Consumer prices gained 5.5 percent, in line with the median projection in a separate Bloomberg poll.
The Aussie lost 2 percent to $1.0189 and dropped 1.9 percent to 79.25 yen. The New Zealand dollar fell 1.8 percent to 78.43 U.S. cents and depreciated 1.7 percent to 60.98 yen.
To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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