from Bloomberg:
The euro fell for the first time in seven days against the dollar after Moody’s Investors Service downgraded its rating outlook for two Bulgarian banks, reviving concern over the health of the European financial system.
The 16-nation currency also dropped versus the yen after the Telegraph newspaper reported an official at Germany’s financial regulator saying the debt of the country’s banks will blow up “like a grenade” unless they participate in the government’s bad bank plan. South Korea’s won declined for a second day versus the dollar on concern North Korea will conduct more nuclear tests after the communist state said yesterday it successfully carried out an underground explosion.
“The credit-rating issue will continue to dominate the market and currencies or countries which are targets of speculation may come under pressure,” said Yuichiro Harada, senior vice president of the foreign-exchange division in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan’s second-largest banking group. “No country across the globe will be able to maintain a AAA rating.”
The euro declined to $1.3977 as of 1:43 p.m. in Tokyo, from $1.4017 yesterday in New York. It climbed as high as $1.4051 on May 22, the strongest since Jan. 2. The single currency weakened to 132.32 yen from 132.92 yen. The dollar traded at 94.68 yen from 94.83 yen.
The euro dropped for the first time in four days versus the yen after Moody’s said it placed the financial-strength ratings of Bulgaria’s DSK Bank AD and First Investment Bank Ltd. on review for possible downgrade. Moody’s cited “the likely deterioration of the Bulgarian operating environment,” as the reason for its decision. DSK Bank is rated D+ and First Investment is ranked at D.
German banks have 200 billion euros ($280 billion) of bad debts, Jochen Sanio, president of Germany’s regulator BaFin said last week, according to the Telegraph. Write-offs may reach 816 billion euros, twice the total reserves of the country’s financial institutions, the newspaper reported, citing an internal memo from the regulator’s office. Germany is “more than able” to cope with the 200 billion euros of toxic assets that its banks still hold, Sanio said in an interview with Bloomberg News last week.
“That report over the German debt situation isn’t helping sentiment toward the euro,” said Adam Carr, a senior economist in Sydney at ICAP Australia Ltd., a part of the world’s largest interbank broker.
Gains by the dollar may be tempered on speculation bond sales this week will renew concerns that a record supply of Treasuries will jeopardize the U.S.’s AAA credit rating.
Ten-year Treasuries fell the most since June 2008 last week as the U.S. prepared to resume debt sales after a two-week pause. The Treasury plans to sell $40 billion in two-year notes today, $35 billion in five-year notes May 27 and $26 billion in seven- year notes May 28. It will sell $61 billion in three-month and six-month bills in a weekly auction today.
The U.S. will increase debt sales to $3.25 trillion in the fiscal year ending Sept. 30, according to Goldman Sachs Group Inc., as President Barack Obama borrows record amounts to try to snap the deepest recession in at least 50 years. S&P lowered its outlook on the U.K.’s AAA credit rating May 21 to “negative” from “stable,” raising concern that the same may happen to the world’s biggest economy.
“Given growing concerns about U.S. creditworthiness, capital outflows from the dollar-denominated assets may gain further momentum,” said Kengo Suzuki, manager of the foreign bond trading department in Tokyo at Mizuho Securities Co., a unit of Japan’s second-largest banking group.
