Euro falls amid concern over summit

The euro fell to the lowest level in more than a week against the yen as Spanish and Italian borrowing costs rose amid concern a EU summit this week will fail to solve the sovereign-debt crisis.

The 17-nation currency slid against the dollar, reaching its lowest in more than two weeks.

The dollar weakened against Japan’s currency, which strengthened versus all of its most-traded peers, after a report showed that US consumer confidence declined for a fourth month in June, reaching a five-month low.

“What we’re seeing out of Italy and Spain is a key catalyst,” said Mary Nicola, a currency strategist at BNP Paribas in New York.

“There could be some disappointment out of the EU summit.”

The euro declined 0.6% to 98.98 yen yesterday after touching 98.75 yen, the lowest level since June 18. It fell 1.5% on Monday, the biggest drop since May 30. The shared currency fell 0.4% to $1.2462 after touching $1.2442, the weakest level since June 8. The dollar weakened 0.3% to 79.45 yen.

The euro may be supported by its June 1 low of $1.2288, according to data compiled by Bloomberg based on technical indicators. Support refers to an area where buy orders may be clustered.

The stronger the support, the more selling is needed to break through it.

After Spain formally requested a bailout for its banks and Cyprus also sought a lifeline from the euro’s firewall funds, Moody’s Investors Service downgraded 28 Spanish banks, citing the country’s sovereign debt and rising property losses.

The two-day EU summit in Brussels starting June 28 is the first meeting of European leaders since Greek parliamentary elections on June 17 that saw victories for pro-bailout parties. France and Italy are urging Germany to take decisive action to end the debt crisis, now in its third year.

“We expect a disappointing outcome from the EU leaders’ summit, so therefore we think that the euro may weaken into the week’s end,” said Richard Grace, the chief currency strategist and head of international economics in Sydney at Commonwealth Bank of Australia, the nation’s biggest lender.

“The US dollar is going to remain quite firm.”

The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain was 141,066 contracts on June 19, versus a record of 214,418 the week ended June 5, figures from the Washington-based Commodity Futures Trading Commission showed.

The euro has depreciated 2.7% this year, making it the worst performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has risen 1.5% and the yen has fallen 2%.

— Bloomberg