The euro dropped from a five-month high against the yen after Moody’s Investors Service cut the credit ratings of five Spanish regions and French industrial confidence fell to the lowest in more than three years.
The 17-nation currency declined to the lowest in a week versus the dollar as Spanish newspaper El Confidencial said the government told the European Union it will miss its budget deficit target this year. The yen rose after falling past 80 per dollar for the first time in three months as weakness in global stocks and commodities outweighed signs Japan’s economy is closer to contraction. The Canadian dollar depreciated before the central bank announces interest rates today.
“We had the downgrade of some of the regions in Spain overnight, and this may have been negative” for the euro, said Marcus Hettinger, a currency strategist at Credit Suisse Group AG in Zurich. “The French business confidence indicator was quite a disappointment. That’s probably also a reason why the euro weakened. It looked like we could get some stabilization.”
The euro fell 0.8 percent to 103.53 yen at 8:43 a.m. New York time after appreciating to 104.59 yen, the strongest level since May 4. The common currency dropped 0.7 percent to $1.2970. The yen gained 0.2 percent to 79.78 per dollar after declining earlier to 80.01, the weakest since July 6.
Futures on the Standard & Poor’s 500 Index lost 1.2 percent and the S&P GSCI Index of 24 raw materials sank 1.2 percent.
The euro will probably be little changed for the rest of this year and trade at about $1.30 by the end of December, Hettinger said.
Bank of Canada
The Canadian dollar fell 0.5 percent to 99.68 cents versus the U.S. currency and reached 99.76 cents, the weakest level since Aug. 8.
Bank of Canada officials led by Governor Mark Carney will keep the key interest rate at 1 percent today, according to all 26 economists in a Bloomberg survey. They’re scheduled to release the decision at 9 a.m. Toronto time.
South Africa’s rand tumbled against all of its major counterparts as copper dropped to its lowest level in more than six weeks. Metals and other commodities account for 45 percent of the nation’s exports. The rand slid to the lowest in a week versus the dollar, losing as much as 1.5 percent to 8.7722.
The yen dropped earlier against the dollar as Economy Minister Seiji Maehara, who has been calling for more action from the central bank, said today he may attend the Bank of Japan’s next meeting on Oct. 30 if his schedule permits.
The Japanese currency weakened 1.7 percent against the dollar over the past three months and dropped 8.4 percent versus the euro. It fell for an eighth day against the dollar yesterday, the longest losing streak in seven years.
Moody’s cut the rating of Catalonia by two steps to Ba3, and also lowered Extremadura, Andalucia, Castilla-La Mancha and Murcia. The company said in a statement yesterday the decision was “driven by the deterioration in their liquidity positions, as evidenced by their very limited cash reserves.” A week ago, Moody’s kept Spain’s sovereign rating at Baa3, the lowest investment grade.
The Spanish government told the EU its budget deficit in 2012 will be 7.3 percent of gross domestic product, exceeding a target of 6.3 percent, El Confidencial reported, citing a Spanish report.
An index of sentiment among French factory executives fell to 85 in October, the lowest since August 2009, from 90 last month, the statistics office Insee said in Paris.
The euro has strengthened 4 percent in the past three months, the best performance of 10 developed-market currencies tracked in Bloomberg Correlation-Weighted Indexes. The shared currency is still down 1.7 percent this year.
“With all the troubles in Europe, it seems to be hard to buy the euro,” said Derek Mumford, a Sydney-based director at Rochford Capital, a currency risk-management company. “The euro is defying gravity. The promise from the European Central Bank to support sovereign debt has had effect, and has been buying some time. The overall picture is getting worse.”
The Hong Kong Monetary Authority sold its own currency for a second time in a week to stem appreciation after it traded near the upper limit of a 29-year-old peg to the dollar.
The central bank bought $855 million at a rate of HK$7.75 per dollar, the authority said in an e-mailed statement today. That followed a $603 million intervention on Oct. 19, when it stepped into the market for the first time since 2009. The Hong Kong dollar was little changed at HK$7.7502.
The central bank pegged the currency in 1983 and in 2005 committed to keep the exchange rate between HK$7.85 and HK$7.75.