Euro Reaches Decade Low Versus Yen on Signs Debt Crisis Weighing on Growth

Dated Posted: 2011-10-04

The euro touched the lowest level in more than a decade against the yen before reports that may indicate a slowdown in the European economy, spurring concern the region’s debt crisis is damping prospects of recovery.

The 17-nation currency reached an eight-month low versus the dollar after European governments signaled bondholders may have to take bigger losses on Greek debt. The Australian dollar declined to the least in more than a year versus the greenback after the Reserve Bank of Australia held its key rate at 4.75 percent. Indonesia’s rupiah slid for a second day as global funds reduced holdings of the nation’s assets.

“There isn’t much progress in containing the sovereign problem, and Europe will possibly slip into recession,” said Kengo Suzuki, manager of the foreign-bond department in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest listed bank. “That’s negative for the euro.”

The euro was at 101.13 yen at 1:10 p.m. in Tokyo from 100.97 yen in New York yesterday. It dropped to as low as 100.76, the least since June 2001. The common currency bought $1.3185 from $1.3176, after touching $1.3164, the weakest since Jan. 13. The Australian dollar slid to 94.73 U.S. cents from 95.27. It fell to 94.56 cents earlier, the least since September 2010.

The MSCI Asia Pacific index of regional shares slid 2.4 percent. Chinese financial markets are shut this week for a public holiday.

‘Technical Revisions’

European finance ministers meeting in Luxembourg considered “technical revisions” to a July deal that foresaw investors contributing 50 billion euros ($66 billion) to a 159 billion- euro rescue. That “private sector involvement” includes debt swaps and rollovers.

“As far as PSI is concerned, we have to take into account that we have experienced changes since the decision we have taken on July 21,” Luxembourg Prime Minister Jean-Claude Juncker, who chairs the group of euro-area finance ministers, told reporters today. “These are technical revisions we are discussing.”

The ministers also pushed back a decision on the release of Greece’s next loan installment until after Oct. 13. It was the second postponement of a vote originally slated for yesterday as part of the 110 billion-euro lifeline granted to Greece last year.

Goldman Forecasts

Goldman Sachs cut its global 2012 economic growth forecast to 3.5 percent from 4.3 percent. The company expects a mild recession in Germany and France and a deeper downturn in euro- area’s periphery over next few quarters, economists Jan Hatzius and Dominic Wilson wrote in a note yesterday.

Goldman also lowered its three-month forecast for the euro to $1.38 per dollar from an earlier projection for it to trade at $1.40. The common currency will be at 106 yen in three months, compared with a previous estimate of 108 yen, the bank said in a separate report.

A final reading for a services purchasing managers’ index for Germany, Europe’s biggest economy, will confirm that the gauge dropped to 50.3 last month, the least since July 2009, the median estimate of economists in a Bloomberg News survey showed before tomorrow’s report. Retail sales in the euro region probably dropped 0.3 percent in August after a 0.2 percent increase the previous month, a separate survey showed before the data is released tomorrow.

Demand for the euro was supported amid speculation it’s recent selloff was overdone. Japanese Finance Minister Jun Azumi said the euro’s weakness against the yen is “extreme” and isn’t good for the stability of the global economy.

Relative Strength

The euro’s 14-day relative strength index versus the dollar and the yen were both below the 30-level that some traders see as signaling an asset’s price has fallen too rapidly and may be poised for a rebound.

“We may see some buying back of the euro given the currency has been oversold,” said Mizuho’s Suzuki. “It’s going to be short lived.”

Australia’s currency fell versus its U.S. and Japanese counterparts after RBA Governor Glenn Stevens held the overnight cash-rate target at 4.75 percent, matching the median estimate of 22 economists surveyed by Bloomberg before today’s meeting.

“Conditions in global financial markets have continued to be very unsettled, with uncertainty increasing about both the prospects for resolution of the sovereign debt and banking problems in Europe, and the outlook for global economic growth,” according to the text of a statement by Stevens explaining the central bank’s decision today.

Indonesia’s currency declined against the dollar after international investors sold $60 million more local shares than they bought yesterday, according to exchange data. Policy makers will remain in the market to stabilize the rupiah, Bank Indonesia Director of Monetary Policy Hendar, who goes by only one name, said in a mobile-phone text message yesterday.

The rupiah dropped 0.7 percent to 8,960 per dollar, according to prices from local banks complied by Bloomberg.

 

Source:  Bloomberg