Euro Weaker After S&P’s Downgrade Warning; Canada’s Dollar Gains on Carney

The 17-nation euro pared losses as U.S. stocks rose. Canada’s dollar rose against most of its major counterparts as the central bank kept interest rates unchanged and Governor Mark Carney noted stronger economic data in the U.S. and Canada. The Swiss franc fell against all its major counterparts after consumer prices dropped in November.

“We’re seeing the continuation of negative momentum for the euro after the S&P warning,” said John Doyle, a strategist in Washington at currency-trading firm Tempus Consulting Inc. “The Dow opened flat and then popped up and we saw the euro correlate that way with it. You’re seeing traders trying to process all of that information.”

The euro was little changed at $1.3398 at 12:28 p.m. in New York after gaining as much as 0.2 percent. The 17-nation currency dropped 0.1 percent to 104.12 yen. The dollar weakened 0.1 percent to 77.72 yen.

The S&P 500 Index (INDU) rose 0.1 percent and the Dow Jones Industrial Index gained 0.5 percent.

Swiss Pricing

The franc declined 0.6 percent to 92.66 centimes per dollar, and weakened 0.5 percent to 1.2404 per euro after the Federal Statistics Office said consumer prices decreased 0.5 percent from a year earlier. That is the biggest drop since October 2009.

“Falling prices in Switzerland, together with the real threat of recession next year, must trigger some further bold action from the SNB,” said Michael Derks, a market strategist at FXPro Financial Services Ltd. in London. “The overvalued exchange rate is doing enormous damage to the economy. They need to be bold once more.”

The Swiss government said last week it’s willing to “examine the feasibility of supporting measures” to aid the central bank in its defense of a 1.20 ceiling versus the euro.

Australia’s dollar was the second-worst performer after the franc against the dollar after the Reserve Bank cut its key cash rate target by a quarter-percentage point to 4.25 percent. The decision completed the first back-to-back easing since February 2009.

The Australian dollar fell 0.5 percent to $1.0218.

Bank of Canada

Canada’s dollar strengthened 0.2 percent to C$1.0142 per U.S. dollar after the Bank of Canada kept its benchmark rate at 1 percent.

“On balance, recent economic indicators in Canada suggest that growth in the second half of this year is slightly stronger than the Bank projected in October,” the central bank’s statement said. “Recent economic data suggest that growth in the United States has been slightly more robust than anticipated.”

S&P added the bailout fund today to the 15 euro nations placed on a negative outlook yesterday before a summit meeting this week.

The euro area’s six AAA rated countries are among those placed on a negative outlook, and their ratings may be cut depending on the result of a summit of European leaders on Dec. 9, S&P said yesterday in a statement. The company said ratings may be cut by one level for Austria, Belgium, Finland, Germany, the Netherlands and Luxembourg, and by up to two notches for the other governments.

Bond Rating

“We could lower the long-term credit rating on EFSF by one or two notches if we were to lower the ‘AAA’ sovereign ratings, which are currently on CreditWatch, on one or more of EFSF’s guarantor members,” S&P said in a statement today.

The facility’s 2.75 percent bonds due July 2016 fell after Standard & Poor’s said it placed the fund on watch negative. The notes fell to 101.45 cents on the euro, according to Bloomberg Bond Trader prices.

“All the news and headlines are driving the euro only for the short term, as the most important thing is the EU summit, which will dictate sentiment for the next couple of weeks,” said Eric Viloria, senior currency strategist for Gain Capital Group LLC in New York. “The euro is starting to come off after EFSF news, but even the S&P says they are waiting for results from the EU summit.”

The euro’s losses were limited against its major counterparts after Germany’s Economy Ministry said factory orders, adjusted for seasonal swings and inflation, jumped 5.2 percent from September, when they dropped 4.6 percent. On the year, orders rose 5.4 percent.

The shared currency is down 1.2 percent this month against nine developed nation currencies, according to Bloomberg Correlation-Weighted Indexes. The dollar has gained 2.3 percent and the yen is up 2.9 percent.

 

(Bloombergnews)


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