The euro had its biggest one-day drop against the yen in seven years as
the deepening credit crisis prompted European governments to pledge
bailouts for troubled banks while stopping short of coordinated action.
The 15-nation currency declined to a 14-month low against the dollar
and the weakest in two years versus the yen after leaders meeting at
the weekend avoided announcing any plan that would mirror the U.S.'s
$700 billion bailout. Germany joined with banks and insurers to prevent
the collapse of property lender Hypo Real Estate Holding AG and Belgium
announced a revised deal to salvage Fortis. The yen jumped 5 percent
versus the Australian dollar as investors cut holdings of higher-
yielding assets funded in Japan, known as carry trades.
``It appears that European governments are failing to grasp the real
problem and are taking reactive measures instead of dealing with the
underlying situation,'' said Ian Stannard, a London-based currency
strategist fro BNP Paribas SA. ``The market is disappointed with the
results out of weekend meetings and that's going to put the euro under
increasing pressure.
The German government and the country's banks and insurers agreed on a
50 billion-euro ($68 billion) rescue for Hypo Real Estate after an
earlier bailout faltered. BNP Paribas SA, France's biggest bank, agreed
to take over Fortis's units in Belgium after a government rescue failed.
``It could be difficult for the European Union to take coordinated
relief actions,'' Toru Umemoto, chief currency analyst in Tokyo at
Barclays Capital, Britain's third-biggest lender, said in a Bloomberg
Television interview. ``This is a risk and the currency market is
focusing on this risk.''
HSBC Holdings Plc cut its forecast for European growth next year to 0.4
percent from a previous prediction of a 0.9 percent, economists led by
Janet Henry wrote in a note to clients dated Oct. 3. UBS AG cut its
outlook for expansion in Asia excluding Japan next year to 6.1 percent
from 6.9 percent.
``We are in a multi year trend reversal,'' said Paresh Upadhyaya, a
senior vice president at Putnam Investment LLC in Boston, who helps
manage $50 billion in currency assets. ``We are going to see a global
central bank easing cycle. The yen is the place to be in this
environment of economic slowdown and heightened volatility.''
Technical analysis shows the euro may fall to $1.3380 this week, said
Kengo Suzuki, currency strategist at Shinko Securities Co. in Tokyo.
The European currency is likely to extend last week's 5.8 percent loss
as its daily moving average convergence/divergence chart is showing a
sell signal, according to Suzuki. Support at $1.3380 is near the euro's
200-week moving average, he said. Support is a level where buy orders
may be clustered.
``There's really not much to suggest the euro can stage a meaningful
recovery right now,'' Suzuki said. ``It's been caught in a wave of
panic selling and the charts show it can go lower still.''