Euro falls toward 1-week low amid political turmoil before ECB

Rajoy Allegations

Greece’s Yannis Stournaras said on Bloomberg Television that the euro’s strength is a concern even as its current level shows a return in confidence in the currency. French President Francois Hollande yesterday called for government leaders to steer the euro’s exchange rate, a suggestion rejected by the German government today, while Luxembourg Finance Minister Luc Frieden said the level doesn’t concern him at present.

“There is a significant risk of something happening at the ECB meeting, and that’s why the market will sell ahead of it,” Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in New York, said in a telephone interview. “We’ve seen the market being whipsawed, up and down, on the euro-dollar side.”

Spain’s Prime Minister Mariano Rajoy faced calls to step down amid contested reports of corruption in his party. He has imposed the harshest austerity measures in Spain’s democratic history to curb the budget deficit and lower borrowing costs.

Italian Yields

Monte Paschi, the world’s oldest lender, said on Jan. 17 it may be forced to restate earnings after Bloomberg News reported that it used derivatives to obscure losses. Accounting irregularities also led to a criminal investigation targeting former management. The bank’s board was to meet in Siena to discuss the impact on its balance sheet.

Italian 10-year government bond yields have climbed 25 basis points, or 0.25 percentage point, to 4.58% this week amid concern about the possible success of former premier Silvio Berlusconi at this month’s parliamentary election.

Berlusconi, who is appealing a four-year sentence for tax fraud while standing trial in an unrelated case on charges of paying a minor for sex and abusing his office, has narrowed the gap to the bloc led by Democratic Party leader Pier Luigi Bersani to within the margin of error of an opinion poll for the first time before Feb. 24-25 elections.

The euro has strengthened 2.9% this year, the biggest advance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar is little changed and the yen tumbled 7.8%, the largest decline.

Japan’s Prime Minister Shinzo Abe will present his candidate for the next BOJ governor to opposition parties after a visit to the U.S. this month, public broadcaster NHK reported today, without saying where it got the information. Abe’s government has defined ending deflation as central to efforts to revive the world’s third-biggest economy.

Bloomberg News

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