Sun, Dec 18, 2011 - Page 10 News List

Euro weakens as France, Italy warned of downgrade

DARK DAYS:The ongoing debt-repayment crisis in the eurozone has caused Fitch Ratings to revise its outlook on the ratings of seven countries to negative

Bloomberg

The euro dropped against the majority of its most-traded counterparts as concern increased that the region’s leaders would not be able to contain the sovereign-debt crisis, after Fitch Ratings put France on negative outlook and said six other European nations might be downgraded.

The 17-nation currency erased earlier gains against the US dollar as Fitch revised its outlook on the ratings of Belgium, Spain, Slovenia, Italy, Ireland and Cyprus to negative, and said France was more exposed to the crisis than other top-rated eurozone countries. Canada’s currency fell, erasing earlier gains, as European ratings concerns damped demand for higher-yielding assets.

“There is a positive and negative camp and Fitch is obviously in the negative,” said Brian Dolan, chief strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey. “The market is ahead of the ratings agency and the declines we’ve seen in the euro is pricing in a probability of a ratings cut.”

The euro gained 0.2 percent to US$1.3046 at 5pm in New York on Friday, after gaining as much as 0.5 percent. It fell 2.5 percent this week, the biggest such decline since the five-day period ended Sept. 9. The shared currency rose 0.1 percent to ¥101.47. The Japanese currency rose 0.1 percent to ¥77.76 per US dollar.

The euro has depreciated 0.8 percent this year against nine developed-nation counterparts, according to Bloomberg Correlation-Weighted Indexes. The yen has advanced 4.8 percent and the US dollar has gained 1.7 percent.

The New Zealand dollar, nicknamed the “kiwi,” rose the most among the 16 major currencies tracked by Bloomberg, adding 1.1 percent to US$0.7618, paring its loss this week to 1.8 percent. Canada’s currency fell 0.3 percent to C$1.0383 and the nation’s 10-year bond yields fell below 1.9 percent for the first time.

Standard & Poor’s put 15 of the 17 euro nations on “creditwatch negative” last week, pending the outcome of last week’s summit and the actions of central bankers.

The euro earlier gained after Eurogroup President Jean-Claude Juncker said Europe should meet a deadline for arranging loans with the IMF as part of a crisis- fighting package.

The three-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, was 122 basis points below the euro interbank offered rate, 18 basis points lower than Thursday’s 140 basis points. The measure reached 162 last month, which was the highest level since October 2008.

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