Euro falls as Moody’s downgrades Spanish regions; yen advances

Ratings Cut

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.

‘Defying Gravity’

“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.

Bloomberg News

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