Euro Falls as S&P Spain Rating Cut Boosts Europe Concern
By Monami Yui and Kristine Aquino - Apr 26, 2012 5:13 PM GMT-0700
The euro fell, extending a monthly loss against the dollar and yen, after Standard & Poor’s cut Spain’s sovereign debt rating, adding to concern the region’s financial woes are spreading.
S&P downgraded Spain’s long-term credit rating two levels to BBB+ yesterday from A, saying the outlook is negative as the country’s recession undermines efforts to cut the budget deficit. The yen rose against 10 of its 16 major counterparts before a meeting today where the Bank of Japan (8301) is expected to expand stimulus measures to combat deflation. The Australian dollar halted a two-day gain as S&P 500 Index futures declined, sapping demand for higher-yielding assets.
“It does look as if the Spanish crisis is set to get worse before it gets better,” said Mike Jones, a currency strategist at Bank of New Zealand in Wellington. “The knee-jerk reaction from the euro to the downgrade has been to the downside. It’s also taken some of the heat out of investors’ risk appetite.”
The euro fell 0.2 percent to $1.3188 at 8:51 a.m. in Tokyo from the close in New York yesterday, poised for a 1 percent loss this month. The common currency slid 0.1 percent to 106.92 yen, having weakened 2.2 percent since March 31. The yen was at 81.07 per dollar from 80.99, after climbing 0.4 percent yesterday.
Jones sees the euro weakening to $1.29 by the end of June.
The so-called Aussie slipped 0.2 percent to $1.0367, after advancing 0.7 percent over the previous two days. S&P 500 Index futures declined 0.5 percent.
Spain Downgrade
Spain’s 10-year borrowing costs have climbed about 70 basis points this year as Prime Minister Mariano Rajoy struggles to convince investors he can control public finances amid soaring unemployment and a contracting economy. Banks threaten to disrupt the premier’s efforts as bad loans reach the highest levels in almost two decades.
“Spain’s budget trajectory will likely deteriorate against a background of economic contraction,” S&P wrote in a statement. “At the same time, we see an increasing likelihood that Spain’s government will need to provide further fiscal support to the banking sector. As a consequence, we believe there are heightened risks that Spain’s net general government debt could rise further.”
Boost Asset Purchases
The BOJ will likely raise its asset-purchase program by 5 trillion yen ($61.7 billion) to 70 trillion yen, the Nikkei newspaper reported today ahead of the policy meeting, after which the bank releases new inflation forecasts. All 14 economists in a Bloomberg News survey predict additional easing with most expecting an increase in asset buying ranging from 5 trillion yen to 10 trillion yen.
Japan’s consumer prices excluding fresh food rose 0.2 percent in March from a year earlier, following a 0.1 percent gain in the previous month, the statistics bureau said today. BOJ Governor Masaaki Shirakawa and his board members said the central bank will target 1 percent inflation “for the time being” on Feb. 14, when they unexpectedly expanded the asset- purchase program by 10 trillion yen.
The yen has dropped 8 percent this year, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The greenback declined 2.5 percent, the second-worst. The euro has depreciated 0.6 percent.
-- Editors: Jonathan Annells, Naoto Hosoda
To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net
