Euro Falls a Second Day on Concern Region’s Crisis to Spread; Dollar Gains

20-Dec-2010

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Mr. Gao co-found and became the CFO at Oxstones Capital Management. Mr. Gao currently serves as a director of Livedeal (Nasdaq: LIVE) and has served as a member of the Audit Committee of Livedeal since January 2012. Prior to establishing Oxstones Capital Management, from June 2008 until July 2010, Mr. Gao was a product owner at Procter and Gamble for its consolidation system and was responsible for the Procter and Gamble’s financial report consolidation process. From May 2007 to May 2008, Mr. Gao was a financial analyst at the Internal Revenue Service’s CFO division. Mr. Gao has a dual major Bachelor of Science degree in Computer Science and Economics from University of Maryland, and an M.B.A. specializing in finance and accounting from Georgetown University’s McDonough School of Business.







Candice Zachariahs and Ron Harui, On Monday December 20, 2010, 2:50 am EST

The euro declined to a two-week low against the dollar and the yen on speculation European nations will struggle to raise funds as rating companies downgrade the credit ratings of countries in the region.

The single currency fell versus 14 of its 16 major counterparts as France prepared to sell 5 billion euros ($6.6 billion) of bills after Moody’s Investors Service last week cut Ireland’s credit rating and said it may lower Spain’s. The dollar gained versus the euro before reports this week forecast to show the U.S. economy grew and personal spending increased. South Korea’s won touched a three-week low on speculation North Korea will retaliate against artillery drills by its neighbor.

“The euro is largely being weighed down by negative developments inside the euro zone,” said Gareth Berry, a currency strategist in Singapore at UBS AG, the world’s second- largest foreign-exchange trader. “For example, Moody’s downgraded Ireland’s credit rating.”

The euro dropped to $1.3161 as of 7:44 a.m. in London from $1.3188 in New York last week, after declining to $1.3125, the weakest since Dec. 2. The 16-nation currency fell to 110.43 yen from 110.77 yen, after sliding to 110.18, the lowest since Dec. 7. The dollar traded at 83.90 yen from 83.98 yen.

The euro declined for a second day against the dollar after Moody’s on Dec. 17 lowered Ireland’s credit rating by five levels to Baa1 and on Dec. 16 placed Greece’s Ba1 local and foreign-currency government bond ratings on review for possible downgrade. Standard & Poor’s last week put Belgium’s rating on negative watch.

‘Euro Vulnerable’

“The rating agencies’ continued downgrades and warnings on the ratings on European countries will leave the euro vulnerable,” analysts led by Hans-Guenter Redeker, London-based global head of foreign-exchange strategy at BNP Paribas SA, wrote in a research note Dec. 17. “We continue to favor the euro-dollar breaking lower from its recent trading range.”

The cost to insure French government debt trebled this year to about 102 basis points on Dec. 17, approaching the record 105 basis points reached on Nov. 30, according to data provider CMA.

The European Central Bank said it has “serious concerns” that legislation introduced by the Irish government to fix its banking system threatens the ECB’s ability to run its liquidity operations, according to a position paper dated Dec. 17.

Dollar Index

The Dollar Index maintained two weeks of gains as demand for safety increased and signs the world’s largest economy is improving spurred investor appetite for U.S. assets.

U.S. gross domestic product expanded at a 2.8 percent annual pace in the third quarter, quicker than the 2.5 percent estimate published last month, the Commerce Department will say Dec. 22, according to a Bloomberg survey. Spending by consumers rose 0.5 percent in November after a 0.4 percent increase in October, a separate survey showed before the Dec. 23 report.

“The U.S. dollar will track higher this week as market forecasts for the economic-growth revisions and personal- spending reports are a bit underdone,” said Joseph Capurso, a Sydney-based currency strategist at Commonwealth Bank of Australia, the nation’s largest lender. “Overlay that with ongoing concerns, downgrades and the like in Europe and it’s difficult to see the euro climb higher.”

The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, traded at 80.402 from 80.373 last week, when it gained 0.4 percent.

Korean Won

The Korean won touched a three-week low against the dollar as military tensions with the North damped demand for the nation’s assets and after the government proposed tighter curbs on capital flows

A levy is planned for foreign-currency borrowing by banks, the government said yesterday. South Korea today held a live- firing drill on Yeonpyeong Island, a month after North Korea shelled the island close to the disputed sea border off the peninsula’s west coast, killing four people.

“Geo-political tensions from the Korean region have popped up again this morning which has served to keep the ‘risk trade’ on the back burner,” Tim Waterer, a foreign-exchange dealer at CMC Markets in Sydney, wrote in an e-mailed note.

The won dropped to as low as 1,172.25, the weakest since Nov. 24, before closing at 1,150.25 from 1,152.58.

Investors may profit in 2011 by buying the U.S. currency against Japan’s as the yield differential between the two nations’ bonds increases, according to Michael Hasenstab, who runs the $43.7 billion Templeton Global Bond Fund for Franklin Templeton Investments in San Mateo, California.

U.S. 10-year yields reached a seven-month high of 3.56 percent last week amid signs the nation’s recovery is gaining momentum. The extra yield 10-year Treasuries offer over similar maturity Japanese bonds touched the most since May on Dec. 15.

“Historically, there has been a strong correlation between the bilateral exchange rate and the difference between yields in the U.S. and Japan, and we expect this relationship to continue given the very large investment flows involved,” Hasenstab wrote in an e-mailed statement.

To contact the reporter on this story: Candice Zachariahs in Mumbai at czachariahs2@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.


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