10 Feb 2009
Feb. 10 (Bloomberg) -- The euro fell against the dollar and the yen as a Nikkei newspaper report that Russian banks and businesses may seek to reschedule $400 billion of foreign loans deepened concern financial turmoil in Europe is worsening.The yen also ended a three-day loss versus the euro after European finance ministers signaled increasing concern that some governments are finding it harder to borrow in financial markets. The dollar strengthened on optimism that the U.S. government's stimulus and bank-rescue packages will help spur growth in the world's largest economy.
"European banks may face more financial difficulties, given the Nikkei's report that Russian banks may negotiate a debt rescheduling," said Yuji Saito, head of the foreign- exchange group in Tokyo at Societe Generale SA, France's third- largest bank by market value. "This is likely to cause risk aversion. It is natural that the euro is sold and the yen is bought."
The euro fell 1.4 percent to $1.2826 as of 1:20 p.m. in Tokyo from $1.3003 late in New York yesterday. Europe's single currency slipped 1.5 percent to 117.18 yen. The dollar was at 91.35 yen from 91.46 yen. The euro may weaken to $1.27 and 117 yen and the dollar may depreciate to 90 yen today, Saito said.
The British pound climbed to 86.57 pence per euro from 87.28 pence. The yen rose 1.4 percent to 61.18 versus Australia's dollar and 1.2 percent to 48.64 against New Zealand's dollar.
Financial Difficulties
The euro weakened versus 13 of the 16 most-active currencies after the Nikkei newspaper said the Russian Association of Regional Banks has submitted a plan to the Russian government for rescheduling loans, citing an interview with Anatoly Aksakov, the head of the association. The group is already in talks with HSBC Holdings Plc and Deutsche Bank AG, the Nikkei reported.
Liliya Khalikova, Aksakov's spokeswoman, confirmed that the Nikkei had interviewed the head of the association. She declined to confirm or deny the contents of the interview.
"The Nikkei report of rescheduling debt is driving the euro lower because European financial institutions have a bigger exposure to Russia than their counterparts in other countries," said Takashi Kudo, Tokyo-based director of foreign-exchange sales at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp., Japan's largest fixed-line phone company.
Kazakhstan's banks may have their ratings cut as the devaluation of the nation's currency makes it harder for them to repay foreign debt and "substantially increases" credit risk, Moody's Investors Service said yesterday.
‘Risk-Averse Investors'
The widening spreads between the interest rates that different euro-area nations must pay bond investors are "worrying developments," according to a "speaking note" prepared for Luxembourg Finance Minister Jean-Claude Juncker and obtained by Bloomberg News.
The yen also strengthened after Asian stocks reversed their advance, according to BNP Paribas SA, France's largest bank.
"The failure for Asian equity markets to hold onto this morning's gains supported the views of risk-averse investors, and in turn, provided support to the yen," analysts led by Hans-Guenter Redeker, London-based global head of currency strategy at BNP Paribas, wrote in a research note sent in an e- mail to Bloomberg News earlier today.
The Nikkei 225 Stock Average declined 0.1 percent today after earlier gaining as much as 2 percent. The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock-market price changes that is used as a measure of risk aversion, climbed 0.6 percent to 43.64 yesterday.
Bank Rescue
Benchmark interest rates are 3.25 percent in Australia and 3.50 percent in New Zealand, compared with 0.1 percent in Japan, encouraging investors to borrow in yen and buy higher-yielding assets elsewhere. In these so-called carry trades, investors get funds in a country with low borrowing costs and invest in one with higher rates. The risk is market moves can erase profits.
The dollar also strengthened versus 15 of the 16 major currencies on optimism U.S. fiscal-stimulus and bank-rescue packages will help the economy recover faster than countries in Asia and Europe.
U.S. President Barack Obama is demanding an economic stimulus bill on his desk before Congress leaves for the Presidents' Day holiday on Feb. 16. The Senate voted 61 to 36 yesterday to end debate on the $838 billion measure. Senators will vote today on whether to approve the bill. Treasury Secretary Timothy Geithner's announcement of a financial-rescue plan is also planned for today.
"There is an emerging view that the worst phase of the financial-system meltdown is over" in the U.S., said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany's second-biggest lender. "Investor sentiment toward the dollar has already changed to favor the currency."
