The euro tumbled the most versus the dollar in three months on concern that so-called peripheral European countries will struggle to repay their bondholders.
The dollar gained against all of its 16 most-traded counterparts this week as risk-averse investors sought it as a refuge. The euro trimmed its five-day loss yesterday on speculation the European Union will bail out Ireland, while the Group of 20 leaders at a summit agreed to develop early-warning indicators to head off global economic turmoil. U.S. consumer prices rose 0.3 percent last month, a report next week may show.
?The focus is all on the periphery,? said Aroop Chatterjee, a currency strategist at Barclays Plc in New York. ?The issues of the euro zone have come back on the front burner. There was very little conviction in euro buying to begin with, and now there?s less of a reason.?
The 16-nation currency dropped 2.4 percent to $1.3691, the biggest weekly loss since Aug. 13. It more than erased a 0.6 percent advance it made the previous week.
The yen rose 0.9 percent to 113.02 per euro, from 114.03 on Nov. 5. The Japanese currency declined for a second week against the dollar, falling 1.5 percent to 82.53 and touching a one- month low of 82.80 yen on Nov. 10.
The euro weakened as the extra yield investors demand to hold 10-year Irish and Portuguese government bonds instead of benchmark German bunds widened to records and data showed Europe?s biggest economies are slowing.
The yield difference, or spread, between Irish 10-year securities and comparable bunds reached 652 basis points, or 6.52 percentage points, the highest ever. The spread on 10-year Portuguese notes and bunds rose to a record 484 basis points.
Spain?s Economy
Spain?s economy stalled, with third-quarter domestic product unchanged from the previous three months, state statistics showed. German and French growth slowed in the third quarter, while the Dutch economy contracted.
Europe?s common currency lost 0.4 percent in the past week in a measure of 10 developed-nation counterparts, Bloomberg Correlation-Weighted Currency Indexes show.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, touched a five-week high of 78.479 as Europe?s sovereign-debt issues overshadowed the Federal Reserve?s plan to pump more money into the U.S. financial system, debasing the dollar. The central bank said Nov. 3 it will buy $600 billion in Treasuries through June under quantitative easing to spur inflation and employment.
Debt Issues Resurface
?The euro-zone debt issues have resurfaced in the last few days, and it seems that the market is focusing on that more,? said Fabian Eliasson, head of U.S. currency sales at Mizuho Financial Group Inc. in New York. ?It seems we are only able to focus on one thing at a time.?
The Australian, New Zealand and Canadian dollars, currencies linked to global growth, dropped on speculation China may raise interest rates to curb inflation. Data showed Chinese consumer prices jumped 4.4 percent in October, the fastest pace in two years.
The Aussie tumbled 3.1 percent from a week ago, the most since July, to 98.47 U.S. cents, while the Canadian dollar fell 1.2 percent to C$1.0123 and New Zealand?s currency dropped 2.8 percent to 77.33 U.S. cents.
The Standard & Poor?s 500 Index fell for the first time in six weeks, retreating 2.2 percent. Crude oil for December delivery decreased 2.3 percent to $84.88 a barrel in New York, after touching a two-year high of $88.63.
Capital Inflows
G-20 leaders agreed at their summit in Seoul that emerging- market nations facing a surge of capital inflows can adopt regulatory steps to cope, offering them cover to limit currency swings and stem asset bubbles.
?Weak consensus around the G-20 means the Asian central banks will still be actively buying and owning dollars,? said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London.
The summit also produced an agreement to develop early- warning indicators to head off sustained current-account imbalances that risk roiling the global economy. Finance ministers will work next year on a set of ?indicative guidelines,? according to a joint statement.
The gathering was marked by clashes over whether Chinese or U.S. policies were more to blame for economic imbalances that endanger the global recovery. President Barack Obama attacked China?s policy of undervaluing its currency. China took aim at the Fed?s quantitative easing, saying it poses dangers to financial stability.
?Hot Money? Crackdown
China?s State Administration of Foreign Exchange said Nov. 9 it would crack down on speculative ?hot money? flowing into the country, according to a statement on the regulator?s website. The agency will ?strictly? punish banks that violate its currency rules, the statement said.
The yuan gained 0.3 percent for the week to 6.6383 per dollar. The People?s Bank of China set the currency?s reference rate for trading at 6.6239 yesterday, the strongest since a peg ended in July 2005.
?The Chinese talk about the internationalization of the renminbi,? strategists led by David Bloom, global head of currency at HSBC Holdings Plc in London, wrote in a report. ?The world economy is, slowly but surely, moving from greenbacks to redbacks.?
Consumer prices in the U.S. rose 0.3 percent in October, according to the median forecast of 65 economists in a Bloomberg News survey before the Labor Department reports the data on Nov. 17. The consumer price index increased 0.1 percent in September.
To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; Catarina Saraiva in New York at asaraiva5@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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