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Euro Weakens for a Third Day Against Dollar

Wednesday, 01 February 2012 | 12:24
The euro fell for a third day against the dollar before Portugal sells bills amid concern the nation will follow Greece in needing more aid to avoid default.
The 17-nation currency dropped for a fifth day versus the yen as Greece struggles to conclude debt-swap talks with creditors. The yen rose against most of its major counterparts even as Japanese Finance Minister Jun Azumi said again today he will take “bold” steps to curb the currency’s strength if necessary. The Swiss franc climbed to a four-month high against the euro, approaching the central’s bank’s ceiling.
“There does seem to be an underlying negative euro story,” said Paul Robson, a senior foreign-exchange strategist at Royal Bank of Scotland Group Plc in London. “People are worried about the rise in Portuguese yields that we’ve seen. Increasingly the periphery is being left behind.”
The euro dropped 0.1 percent to $1.3071 at 8:47 a.m. in London after sliding to $1.3026, the lowest since Jan. 25. The shared currency weakened 0.2 percent to 99.55 yen. The yen climbed 0.1 percent to 76.17 per dollar after rising to 76.12, the strongest since Oct. 31.
Portugal will sell 105-day and 168-day bills today. Standard & Poor’s increased the number of Portuguese banks on “creditwatch negative” yesterday after it cut the country’s sovereign rating on Jan. 13.
‘More Pressure’
“There are concerns that Portugal may also need a second bailout,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “If the economy slows even more, banks would come under more pressure.”
The German government assumes the European Stability Mechanism, the region’s future permanent backstop, will have sufficient funds at its disposal, Finance Minister Wolfgang Schaeuble said in an interview on Deutschlandradio public radio. Greece must fulfill its obligations under its first assistance program to qualify for aid from a second one, he said.
Europe’s crisis has increased demand for safer assets. The yen gained 6.9 percent over the past six months, the second-best performer among the 10 currencies tracked by the Bloomberg Correlation-Weighted Indexes. The dollar rose 7.1 percent, and the euro weakened 2.4 percent.
Japan may act if the yen approaches a new record against the dollar, according to Naohiko Baba, Goldman Sachs Group Inc.’s chief economist in Tokyo. The authorities may attempt large-scale intervention and continue so-called stealth operations for several days, he wrote in a note today.
Goldman’s Prediction
Japan refrained from selling yen in the market last month, the Ministry of Finance said yesterday on its website. Japan sold the currency on Oct. 31 when it climbed to a postwar record of 75.35 per dollar.
The implied volatility of three-month options on Group of Seven currencies rose to 10.61 percent from 10.22 percent last week, according to the JPMorgan G7 Volatility Index. An increase makes investments in currencies with higher lending rates less attractive because the risk in such trades is that market moves will erase profits.
The franc was little changed at 1.20482 per euro after earlier rising to 1.20319, the strongest since Sept. 19, two weeks after the SNB imposed the 1.20 floor.
Source: Bloomberg
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