Euro Heads for Weekly Decline on Europe's Debt Concerns, Ireland Downgrade

The euro was set for a weekly loss against 10 of its 16 major counterparts as concerns Europe’s debt crisis will linger damped demand for the region’s assets.

Europe’s currency traded near the lowest in more than a week against the dollar after Fitch Ratings downgraded Ireland. European Central Bank President Jean-Claude Trichet and ECB Governing Council member Miguel Angel Fernandez Ordonez will speak to reporters in Madrid today. The dollar headed for a weekly gain versus most major counterparts before a report forecast to show U.S. consumer confidence improved this month.

“Residual concern about European debt, I don’t think it’s going to go away fully for quite some time,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “We haven’t seen a lot of rise in the euro.”

The euro fetched $1.3241 at 11:10 a.m. in Tokyo from $1.3239 in New York yesterday, when it touched $1.3165, the lowest since Dec. 2. It has dropped 1.3 percent against the greenback this week. The euro was at 110.85 yen from 110.87 yen, following a 0.5 percent drop yesterday. The dollar traded at 83.72 yen from 83.76 yen, set for a 1.4 percent gain this week.

Fitch yesterday cut Ireland’s credit rating to BBB+ from A+, three steps above non-investment grade, citing the mounting cost to rescue the nation’s banking system.

Ireland Downgrade

“The downgrade reflects the additional fiscal costs of restructuring and supporting the banking system,” Fitch said in a statement. “Ireland’s sovereign credit profile is no longer consistent with a high investment grade rating.”

Fianna Fail, the main party in the nation’s coalition government, will put Ireland’s 85 billion-euro ($113 billion) aid package from the European Union and International Monetary Fund to a parliamentary vote Dec. 15, Prime Minister Brian Cowen said yesterday in an e-mailed statement.

The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, was little changed at 80.046, set for a 0.8 percent advance this week.

The Thomson Reuters/University of Michigan preliminary consumer sentiment index rose to 72.5 this month from 71.6 in November, according to another Bloomberg survey before tomorrow’s data. Applications for U.S. jobless benefits decreased to 421,000 last week, from a revised 438,000 the prior week, Labor Department figures showed yesterday.

‘Economic Strength’

“Dollar selling has been reversed because of improving economic fundamentals,” said Koji Fukaya, chief currency strategist in Tokyo at Credit Suisse Group AG. “Yields are likely to stay around current levels and may rise further, should data show economic strength into next year.”

Demand for the dollar was limited on speculation Federal Reserve policy makers on Dec. 14 will discuss a plan to extend Treasury purchases to support growth. They announced last month a $600 billion second round of debt buying through June.

“I don’t think the Fed wants yields to keep rising right now, and they are likely to try to tame yield gains next week,” said Kengo Suzuki, manager of the foreign bond department in Tokyo at Mizuho Securities Co. “The dollar is likely to switch back to a negative trend.”

Treasury 10-year yields were little changed at 3.20 percent today, after dropping seven basis points, or 0.07 percentage point, yesterday, according to BGCantor Market Data. Government bonds tumbled this week after U.S. President Barack Obama agreed to extend tax reductions for two years and a payroll-tax cut.

China’s Inflation

The premium offered by 10-year government bonds in the U.S. over Japan was 1.95 percent today, after widening to about 2.04 percent on Dec. 8, the most since June, data compiled by Bloomberg show.

The yen may rise on speculation accelerating inflation will prompt China to act further to cool growth, Suzuki said.

“China is highly likely to do something this weekend and add to monetary tightening,” Mizuho’s Suzuki said. “This may lead to risk aversion and cause the yen to be bought, even though most of it may have been priced in.”

China’s consumer prices rose 4.7 percent in November from a year earlier after increasing 4.4 percent in October, according to a Bloomberg News survey of economists before tomorrow’s data. That would be the sharpest increase since August 2008.

China’s trade surplus narrowed to $22.9 billion in November from $27.2 billion in October, the government reported today.

The yen has gained 11 percent this year in a measure of the currencies of 10 developed nations, according to Bloomberg Correlation-Weighted Currency Indexes. The euro has dropped 9.3 percent, while the dollar is down 1.1 percent.

Source: http://www.bloomberg.com/