Euro weakens on speculation sovereign-debt crisis is spreading

Aug. 8 (Bloomberg) -- The euro weakened against its most-traded counterparts as a drop in German industrial production, lower U.K. growth forecasts and ratings cuts for Spain and Italy raised concern Europe’s sovereign-debt crisis is worsening.

The pound strengthened by the most in more than a month against the euro after Bank of England Governor Mervyn King said cutting U.K. interest rates may be counterproductive, damping speculation the central bank will reduce borrowing costs to spur growth. The currencies of Sweden and Norway strengthened to 12- and nine-year highs against the euro on haven demand.

“When we look at the euro from a medium-term perspective, I think we’ve been looking for some economic divergence between Europe and the rest of the world,” Brian Kim, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said on Bloomberg Television’s “Lunch Money” in an interview with Sara Eisen. “It’s still keeping us negative on the euro over the next two or three quarters.”

The euro fell 0.3 percent to $1.2357 at 3:24 p.m. New York time after rising to $1.2444 on Aug. 6, the strongest level since July 5. The shared currency dropped 0.5 percent to 96.95 yen. Japan’s currency climbed 0.2 percent to 78.48 per dollar.

The 17-nation euro may drop to as low as $1.2280 in the next week, said Kathleen Brooks, a research director in London at Forex.com, a unit of online currency-trading company Gain Capital Holdings Inc.

‘To Parity’

“Structurally, I’m looking for the euro to go to parity,” Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd., said in a television interview on “Countdown” with Linzie Janis. “It will take about a year, but we are heading in that direction.”

The Swedish krona appreciated 1 percent to 8.2546 against the euro, its highest level since 2000, before trading at 8.2663. Norway’s krone rose to its highest level since 2003 against the shared currency, gaining as much as 1.1 percent to 7.2585.

“There’s a lot of focus on these currencies as safe havens with strong fundamentals,” Niels Christensen, chief currency strategist at Nordea Bank AB in Copenhagen, said in a telephone interview. “There’s a double effect of demand for these currencies and a weak euro. A lot of investors are favoring these currencies.

The krona will reach 8.0480 per euro as long as it stays below the area from 8.4635 to 8.5052, research analysts wrote today in a client note. The Swedish currency’s strongest level since the shared currency’s 1999 inception is 8.0469, reached in May 2000.

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