Euro Declines for Third Day Before French, Italian Data

By Lucy Meakin - Oct 10, 2012 5:21 PM GMT+0800

The euro fell for a third day against the dollar after the International Monetary Fund said Europe’s banks may need to sell more assets through 2013 if policy makers fail to stem the fiscal crisis.
The 17-nation currency pared a decline to the lowest level in more than a week against the yen as reports showed French and Italian industrial production unexpectedly rose in August. Spain’s Prime Minister Mariano Rajoy meets French President Francois Hollande today in Paris as investors weigh whether the Iberian nation will ask for a bailout.

“It’s not like we’ve gone into anything notable in terms of deterioration in confidence, but these issues are coming into focus and it does suggest the potential there for things to reignite in terms of Spain and the sovereign crisis,” said Derek Halpenny, the European head of global-markets research at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “Over the short term, the upside in the current market environment of no news is limited” for the euro.

The euro weakened 0.1 percent to $1.2867 at 10:19 a.m. London time, after earlier touching $1.2835, the lowest since Oct. 1. It declined 0.1 percent to 100.75 yen, after sliding to 100.44, also the least since Oct. 1. The yen was little changed at 78.29 per dollar.
Halpenny forecasts the euro will rise to $1.30 in one month and trade at $1.28 in three months.

Fiscal Tightening

Failure to implement fiscal tightening or set up a single supervisory system in the timing agreed could force 58 European Union banks from UniCredit SpA (UCG) to Deutsche Bank AG to shrink assets by as much as $4.5 trillion, the IMF said in its Global Financial Stability Report. That’s up 18 percent from its April estimate and would hurt credit and crimp growth next year in Greece, Cyprus, Ireland, Italy, Portugal and Spain, Europe’s so- called periphery.

French industrial production rose 1.5 percent in August, from the previous month, when it increased a revised 0.6 percent. The median estimate of 21 analysts in a Bloomberg survey called for a 0.3 percent decline. Italian output climbed 1.7 percent during the same month. France is the euro area’s second-largest economy and Italy is the third-biggest.
The Stoxx Europe 600 Index fell 0.3 percent. The MSCI Asia Pacific Index of shares slid for a third day, losing 0.8 percent.

To contact the reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net.
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net