Tuesday 24 October 2017

Euro falls from five-month high

The euro weakened from a five-month high against the dollar as speculation European banks will need more funds curbed demand for assets in the 16-nation region.

The currency fell versus its 15 major counterparts ahead of this week’s disclosure of Ireland’s costs to bail out Anglo Irish Bank.

It also slipped from an eight-week high versus the yen as Der Spiegel reported the European Commission lacks confidence in the viability of German regional lenders.

China’s yuan climbed to the strongest level since 1993 on speculation the country will allow faster appreciation.

Ireland’s bank announcement “may unsettle the broader market and make it more difficult for weaker banks in the region to fund themselves,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group in Sydney. “This poses a downside risk for the euro.”

The euro dropped to $1.3460 at 9am in London from $1.3492 in New York last week, when it touched $1.3495, the highest since April 20.

The currency traded at 113.47 yen from 113.62 yen, after rising to 113.51 yen, the strongest level since August 3. The dollar was at 84.26 yen from 84.21 yen.

Finance Minister Brian Lenihan, who said September 22 that costs to bail out Anglo will be “manageable,” is scheduled to publish the latest estimates by October 1.

While the state has pledged €22bn, Standard & Poor’s says the final bill may be €35bn, equal to 20pc of Ireland’s gross domestic product.

‘Needs absolute clarity’

“The market needs absolute clarity,” said Cathal O’Leary, head of fixed-income sales at NCB Stockbrokers in Dublin. “Investors need to see a number for Anglo and they need to be convinced that it’s the final, final number.”

The European Union is checking whether the financial help received by German regional lenders BayernLB, WestLB AG and HSH Nordbank AG is compatible with European law, Der Spiegel reported on September 25, citing a letter from the institution to Germany’s deputy finance minister Joerg Asmussen.

The European Central Bank considered activating the euro-region’s rescue fund to assist Ireland in refinancing debt, German newspaper Handelsblatt reported, citing unidentified government officials.

Various euro-area countries had already been told to raise money on Ireland’s behalf if the need arose, the newspaper said, without giving more details. In the end, the authorities decided against the plan, it said.

Yuan strength

“If we ran into a situation where one of the peripheral countries would have to tap” financial aid, “the market would again play on the topic of implementation risk very much,” said Ulrich Leuchtmann, head of foreign-exchange strategy at Commerzbank AG in Frankfurt.

The euro has declined 6pc this year amid investor concern countries from Greece to Portugal would struggle to service their debts.

Bloomberg

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