Euro Falls as Moody’s Says Ratings Will Be Reviewed; Krona Drops

By Paul Dobson and Monami Yui

Dec. 12 (Bloomberg) -- The euro fell to the lowest this month versus the dollar after Moody’s Investors Service said it will review ratings for all European Union countries, citing a failure to produce “decisive” measures to end the debt crisis.

The dollar and yen strengthened against all the other major currencies as investors sought the safest assets amid concern European nations’ borrowing costs are rising. Sweden’s krona depreciated as European stocks declined, damping demand for higher-yielding investments. China’s yuan gained after the central bank set the strongest reference rate in a month and signaled the currency will be allowed to trade more freely.

“Moody’s captures the mood but the market is disappointed that nothing more substantial was agreed” at last week’s European Union summit, said Kit Juckes, head of foreign-exchange research at Societe Generale SA in London. “Very few people will arrive at work this week full of optimism that the crisis is anywhere near ending. There are no convincing reasons for anyone to want to own the euro today.”

The euro declined 0.8 percent to $1.3280 at 10:16 a.m. London time after dropping to $1.3259, the weakest level since Nov. 30. The 17-nation currency fell 0.6 percent to 103.32 yen. The dollar strengthened 0.2 percent to 77.81 yen.

The single currency may depreciate toward $1.3145, which would be the lowest since January, Juckes said.

EU leaders committed to a new rule that curbs a nation’s annual structural deficit below 0.5 percent of nominal gross domestic product, the European Council said in a statement on Dec. 9 after a meeting in Brussels. The agreement offered few new measures and doesn’t diminish the risk of credit-ranking revisions, Moody’s said in its Weekly Credit Outlook.

‘Immediate Issue’

Standard & Poor’s put the EU’s AAA rating on “creditwatch negative” on Dec. 5 after similar action on 15 of the 17 euro nations, pending the outcome of last week’s summit and the actions of central bankers.

The euro has fallen 1.3 percent in the past month, the biggest loser among 10 developed-nation currencies according to Bloomberg Correlation-Weighted Indexes. The dollar gained 2.7 percent, the best performer, and the yen advanced 1.8 percent.

While a European agreement to limit budget deficits represents “progress,” the onus is on governments rather than the European Central Bank to resolve the crisis with financial backing, Bundesbank President Jens Weidmann told the Frankfurter Allgemeine Sonntagszeitung.

Italian Bonds

Italian notes slid as the nation sold 7 billion euros of one-year bills. France is due to auction 6.5 billion euros of short-maturity debt today. The Italian securities pared their drop after the ECB was said by four people to have bought the securities.

“All eyes will now be on whether the ECB is willing to step up its bond purchases, if not then it now appears likely S&P will follow through with its mass downgrade of EU members soon,” Lee Hardman, a currency strategist at Bank of Tokyo- Mitsubishi UFJ Ltd. in London, wrote in a note to clients. “Safe-haven demand” for the yen and the dollar is “likely to remain firm,” he wrote.

The krona fell to a one-week low versus the dollar as the Stoxx Europe 600 Index slid 0.9 percent.

The currency also weakened as Maris Mancinskis, head of the Swedbank AB Latvian unit, said Latvians pulled about $19 million from local automatic teller machines following “lies” about shuttering its Estonian business.

Risk Aversion

“The Swedish krona is a very cyclical currency and we have a bit of risk aversion in the equity market today which adds to its downside,” Niels Christensen, chief currency strategist at Nordea Bank AB in Copenhagen, said in a telephone interview.

The krona fell 1.2 percent to 6.8092 per dollar after sliding to 6.8233, the weakest since Nov. 30. It depreciated 0.4 percent to 9.042 per euro.

The yuan rose after the Financial News reported Xuan Changneng, head of the People’s Bank of China’s financial stability bureau, as saying policy makers will maintain flexibility while pushing forward with interest-rate and exchange-rate reform. The central bank raised its daily fixing 0.09 percent to the highest level since Nov. 9.

“The PBOC’s comment quelled investors’ depreciation expectations after the weaker export growth,” said Kenix Lai, a Hong Kong-based currency analyst at Bank of East Asia Ltd. “The stronger fixing also shows that China will still allow gains in the currency, even though the pace may slow.”

The yuan gained 0.06 percent to 6.3606 per dollar, after falling 0.08 percent last week.

--With reporting by Masaki Kondo in Singapore and Fion Li in Hong Kong. Editors: Nicholas Reynolds, Mark McCord