The euro fell to a two-week low against the dollar after Spain’s bonds dropped and the central bank said gross domestic product declined this quarter, stoking concern the region’s debt crisis is worsening.
The 17-nation currency weakened for a seventh day against the yen after finance ministers from Germany, the Netherlands and Finland said Europe’s rescue fund should assume a limited role in banking recapitalizations. The dollar and yen rose against their most-traded counterparts on speculation central banks around the world will struggle to revive growth, spurring demand for safer assets. Sweden’s krona declined after a report showed consumer confidence fell more than economists forecast.
“The selloff in the euro stems from questions over what’s going to happen with the banking union and bailout following the comments from the three finance ministers,” Andrew Busch, a global currency strategist at Bank of Montreal in Chicago, said in a telephone interview.
The euro depreciated 0.4 percent to $1.2842 at 10:48 a.m. New York time, reaching the weakest level since Sept. 12. The shared currency dropped 0.4 percent to 99.94 yen, extending its decline during the past seven trading days to 3.2 percent. The yen was little changed at 77.82 per dollar.
Europe’s common currency may weaken toward $1.2740, should it break below a key support level at the 200-day moving average, currently at $1.2827, said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. Support refers to an area where buy orders may be clustered.
Sweden’s krona fell against all of its 16 major counterparts after the National Institute of Economic Research said its consumer confidence index dropped to 2 this month from 5.4 in August. Economists predicted a reading of 5, according to a Bloomberg survey.
The krona slid 0.9 percent to 6.6289 per dollar and weakened 0.4 percent to 8.5124 per euro. The Swedish currency has gained 4.4 percent versus the greenback this quarter, the most out of any its major peers.
The Mexican peso fell versus most of its major peers as emerging market currencies declined amid lower commodity prices and speculation that debt purchases in the U.S. won’t spur growth.
The currency fell 0.5 percent to 12.9296 versus the dollar after earlier depreciating to 12.9417.
Australia’s dollar declined versus most of its peers amid concern political clashes are hampering attempts to resolve Europe’s debt crisis, sapping demand for riskier assets.
The so-called Aussie fell 0.4 percent to $1.0346 after earlier decreasing to the lowest level since Sept. 11.
The New Zealand dollar has led all major currencies this month against the greenback, appreciating 2.1 percent. The Brazilian real was the only one of 16 counterparts to decline versus the dollar, falling 0.1 percent.
The real is also on pace for the biggest quarterly decline out of its peers, having slipped 1.2 percent. The Brazilian currency has lost 8.2 percent versus the dollar in 2012, more than four times the decline of South Africa’s rand, the second- biggest loser.
The Mexican peso leads all 16 of the dollar’s biggest peers with a gain of 7.8 percent this year.
Spanish government bonds slumped, with the yield on the 10- year bond exceeding 6 percent for the first time since Sept. 18.
Spain pledged to meet its budget goals even as data released yesterday showed government spending through August rose from a year ago and tax receipts fell. Catalan President Artur Mas called early elections for Nov. 25, as Prime Minister Mariano Rajoy struggles to gain acceptance for austerity measures.
“The markets are reacting to the negative news flow we’ve seen out of Spain, which destabilizes investor sentiment and pressures the euro,” CIBC’s Stretch said. “The optimism we saw priced in to markets after action from central banks is waning.”
The euro has advanced 2.1 percent this month and 1.2 percent for the quarter against the dollar. The shared currency has also gained 1.1 percent versus the yen this quarter amid optimism policy makers are working toward a solution for the debt crisis and after the Federal Reserve said on Sept. 13 it will buy $40 billion of mortgage-backed securities each month until the labor market improves.
Bank recapitalization “should take place based on an approach that adheres to the basic order of first using private capital, then national public capital and only as a last resort the” European Stability Mechanism, Finance Ministers Wolfgang Schaeuble, Jan Kees de Jager and Jutta Urpilainen said yesterday in a statement distributed by the Finnish Finance Ministry.
The decision may rule out the bailout fund from being used to deal with the 100 billion euros ($126.6 billion) in aid Spain sought for its banks in June.
Options traders are boosting bullish wagers at the fastest pace in three years on an exchange-traded fund that tracks the U.S. dollar, betting the currency will continue its rebound from a four-month low.
Investors are using options to bet that the currency will strengthen amid optimism for U.S. economic growth, according to Donald Selkin of National Securities Corp.
“The call open interest exploded after the QE3 announcement,” Selkin, the New York-based chief market strategist at National Securities, said yesterday by phone, referring to the dollar fund. His firm manages about $3 billion of assets. “It’s an options bet on the dollar rebounding after its low earlier this month. People think that Europe is doing worse than we are, and that will push the dollar back up.”
The euro has weakened 3.2 percent this year, the worst performance after the yen among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has weakened 2.2 percent.