(Bloomberg) -- The pound fell against the dollar and the yen after Moody’s Investors Service said the nation’s finances are “deteriorating rapidly” and the government is taking “risks.” The yen rose to a three-week high against the dollar as Asian stocks fell and U.S. equity futures headed lower. The euro extended this week’s advance against the dollar on speculation German business confidence rebounded, adding to signs the worst of Europe’s economic slump may be over. The dollar weakened against the yen before a U.S. government report that economists say will show durable goods orders declined for the fifth time in six months.
“It’s a veiled threat from Moody’s,” said Sean Callow, senior currency strategist at Westpac Banking Corp. in Sydney. “Given that we are still above where we were 24 hours ago you would hardly be shocked if the pound headed back to the low 1.45s against the dollar.”The pound fell to $1.4678 as of 7:37 a.m. in London from $1.4722 in New York yesterday. The British currency weakened to 142.09 yen from 144.21, and dropped to 89.75 pence per euro from 89.29 pence. The euro declined to 127.57 yen from 128.77 yesterday, and traded at $1.3178 from $1.3144. The yen climbed to 96.82 per dollar after reaching 96.71, the strongest since March 30, from 97.96 yesterday.
The Nikkei 225 Stock Average fell 1.6 percent and futures on the Standard & Poor’s 500 Index dropped 0.4 percent.The U.K. government’s balance sheet is worsening due to weakening tax revenues and the impact of its bank bailouts, Moody’s said in a report yesterday.
The U.K. economy shrank more than economists forecast in the first quarter in the biggest contraction since Margaret Thatcher came to power n 1979. Gross domestic product fell 1.9 percent from the final three months of 2008 as manufacturing and business services posted record declines, the Office for National Statistics said today in London. Economists predicted 1.5 percent, the median of 29 forecasts in a Bloomberg News survey showed. GDP declined 1.6 percent in the previous quarter.
Credit Rating
Moody’s and Standard & Poor’s are reviewing the U.K.’s AAA sovereign credit rating after the government said the nation’s debt will reach 1.4 trillion pounds ($2.05 trillion) over the next five years, the London-based Daily Telegraph reported today. Moody’s analyst Arnaud Mares said Treasury projections are “a cause for concern,” while an S&P spokesman said it was looking at details of the budget and had no comment at this time, the newspaper said.
“The article is weighing on the pound, particularly against the euro,” analysts led by David Woo, London-based head of currency strategy at Barclays Capital, wrote in a research note today. “The credit ratings fear is an idiosyncratic risk for sterling.”
S&P cut Ireland’s credit rating to AA+ from AAA last month as the global financial turmoil fueled borrowing costs and swelled the budget deficit. The agency lowered the ratings of Spain, Portugal and Greece in January. Moody’s placed Ireland’s Aaa-rated government bonds on review for a possible downgrade on April 17, citing the “severe economic adjustment taking place” in the nation.
German Confidence
The euro reversed earlier losses against the dollar before a German report that may show business confidence climbed to 82.3 in April from a 26-year low of 82.1 in March, according to a Bloomberg New survey of economists. The Ifo institute will release the survey in Munich today.The 16-nation currency gained yesterday after Credit Suisse Group AG said it returned to profit and an index showed European services and factory industries shrank in April at the slowest pace in six months.
Dollar Index
The Dollar Index headed for its first weekly decline since April 3 before the Commerce Department’s report on U.S. durable goods and on concern that Chrysler LLC and General Motors will file for bankruptcy.Orders for U.S. durable goods fell 1.5 percent in March, after a 3.4 percent increase in February, according to a Bloomberg News survey of economists. The report will be released in Washington today.The U.S. Treasury is preparing a bankruptcy filing for Chrysler only as a matter of “due diligence,” Michigan Senator Debbie Stabenow said in an interview yesterday.The Dollar Index, used by the ICE to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, fell to 85.101 today from 85.517 yesterday and 85.981 on April 17.
‘Shun Risk’
Japan’s currency headed for a second weekly advance versus Australia’s dollar on concern U.S. banks will unveil additional loan losses, spurring investors to pare holdings of higher- yielding assets.The yen rose against 15 of the 16 most-active currencies this week on speculation the U.S. government will direct banks judged short of capital to say how they will raise extra funds. U.S. lenders may need another $1 trillion in capital to cushion losses, KBW Inc. analysts said yesterday. The estimate is based on KBW’s own “stress test” of the strength of top U.S. lenders, wrote analysts led by Frederick Cannon, based in San Francisco.
Australia’s dollar fell 1.3 percent to 69.14 yen, and New Zealand’s dollar declined 0.9 percent to 54.55 yen. The U.S. government is scheduled to release the results of its so-called stress tests on May 4.
Indonesian Rupiah Set for Weekly Decline on Political Concern
(Bloomberg) -- Indonesia’s rupiah headed for a weekly loss as President Susilo Bambang Yudhoyono’s bid for re- election suffered a setback after a partner ended coalition talks and nominated a rival.Golkar party, the nation’s oldest, yesterday named Vice President Jusuf Kalla as its candidate for the July presidential elections after breaking off talks with Yudhoyono’s Democrat party a day earlier. The rupiah was on course for this year’s best monthly performance on optimism gains in the April 9 parliamentary elections would allow Yudhoyono to tackle an economic slowdown.
The rupiah dropped 1 percent this week to 10,828 per dollar as of 12:18 p.m. in Jakarta, according to data compiled by Bloomberg. The currency rose 0.9 percent today. It is the only gainer this year among Asia’s 10 most-traded currencies excluding the yen, advancing 0.6 percent.The withdrawal of support by his deputy may deny Yudhoyono a win in the July 8 elections, forcing a run off in September, according to pre-election surveys. Yudhoyono’s prospects were boosted by this month’s legislative polls, in which his party won most seats, according to preliminary results.
Running Mate
Some 51.5 percent of respondents said they would vote for Yudhoyono if Kalla was his running mate, according to a survey in February. Yudhoyono may lose about a quarter of those votes without Kalla’s support, according to the survey, carried out by the University of Indonesia, the Indonesian Institute of Sciences and two other organizations.
The rupiah also fell this week as foreign investors sold $72 million more Indonesian shares than they bought, according to stock exchange data. Non-deliverable forwards contracts signal traders are betting the rupiah may drop 0.7 percent to 10,910 over the next month, compared with expectations for a spot rate of 10,775 last week. Forwards are agreements in which assets are bought and sold at current prices for delivery at a future specified time and date.
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