Euro weakens on speculation sovereign-debt crisis is spreading

Ratings Cuts

India’s rupee fell versus most major peers after global lenders cut forecasts more than for any other Asian currency as the weakest monsoon since 2009 led the Reserve Bank of India to reduce growth estimates. The rupee declined 0.6 percent to 55.4150 per dollar.

Spain was cut two steps to A (low) from A (high) and Italy was downgraded one level to A, Toronto-based DBRS said in a statement. Ireland’s grade was confirmed at A (low), four steps from junk.

Italy faces ‘‘persistent stress in market-funding conditions and rising systemic risks,” and financing conditions also pose a threat to Spain’s growth outlook, DBRS said. Doubts about the euro area’s policy response to the crisis contributed to both downgrades, it said.

The British pound gained 0.6 percent to 78.91 pence per euro after strengthening as much as 0.7 percent, the most since July 5. The U.K. currency rose 0.2 percent to $1.5651.

‘Very Short’

Sterling rose against most of its 16 major counterparts after the BOE’s King signaled continued support for Prime Minister David Cameron’s budget squeeze, damping speculation the central bank will reduce borrowing costs to spur growth.

King spoke after publishing the central bank’s quarterly Inflation Report, which included forecasts showing annual gross- domestic-product growth of about 2 percent in two years. That compares with a projection in May of 2.5 percent.

“King hinted that they aren’t going to go ahead with a rate cut, and the market had priced that in already,” said Chris Walker, a currency strategist at UBS AG in London. “If there’s less of a chance of a rate cut, that’s a catalyst for pound support. The market was very short going in to the press conference.” A short position is a bet an asset will fall.

The euro also weakened as reports showing declines in German industrial production and exports added to evidence Europe’s crisis is negatively affecting the region’s largest economies.

German industrial production declined 0.9 percent in June from May, when it gained a revised 1.7 percent, the Economy Ministry in Berlin said. Exports, adjusted for work days and seasonal changes, fell 1.5 percent from May, when they jumped 4.2 percent, the Federal Statistics Office said in Wiesbaden.

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