The euro fell against most of its major counterparts as Moody’s Investors Service told banks it may announce credit downgrades for as many as 17 lenders and securities firms. The yen fell to its lowest level against the dollar in almost a month as U.S. two-year yields exceeded similar maturity yields in Japan by a larger amount. The dollar strengthened a day after the Federal Reserve declined to increase asset purchases while extending its policy to lengthen maturities of existing debt holdings.
“The initial reaction to the downgrade talk would be that it would have some negative impact on the euro,” Mary Nicola, a currency strategist at BNP Paribas SA in New York, said in a telephone interview. “The main focus will be the eco-fin meeting and the European Union finance ministers meeting. The downgrade impact may be very short-lived.”
The euro depreciated 1 percent to $1.2579 at 11:16 a.m. in New York. The yen weakened 0.9 percent to 80.23 per U.S. dollar and touched the weakest level since May 22. The 17-nation currency fell 0.1 percent to 100.94 yen.
The difference between yields on Japanese and U.S. two-year government securities has widened since June 4 and Wednesday reached its highest level since April 5. U.S. two-year yields exceed Japan’s similar maturity debt by 20 basis points, or 0.2 percentage point.
“I attribute the dollar gains against the yen to cross-rate weakness in the yen and the wider interest-rate differentials between the U.S. and Japan in the two-year sector,” Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York, said in a telephone interview.
Japanese Finance Minister Jun Azumi pledged on June 1 to take “decisive action” to protect against “excessive moves” after the yen climbed to its highest level since February against the dollar. Japan has intervened to curb the yen’s 60 percent appreciation during the past decade. The currency surged to a post-World War II record of 75.35 per dollar in October before slipping 7.8 percent in the first quarter.
“Expectations for further monetary easing by the Bank of Japan are increasing,” Neil Jones, head of hedge-fund sales at Mizuho Corporate Bank in London, said in a telephone interview. “Markets expect the proposed consumption tax hike to pass through parliament by the end of the month. Tighter fiscal policy raises the chances of a looser monetary policy. On both counts, a currency should weaken, and the yen is no exception.”
The Moody’s downgrade announcement may come after the close of trading in New York Thursday, said one of the people, who asked to not be identified because the information is private.
“As a policy we don’t comment on the timing of potential future rating actions,” Abbas Qasim, a New York-based spokesman for Moody’s, said in a telephone interview Thursday.
The company said in February it may lower the ratings of companies including UBS AG, Credit Suisse Group AG and Barclays Plc as part of a review of how Europe’s sovereign-debt crisis was hurting more than 100 lenders. Any downgrades could raise borrowing costs and force banks to increase collateral.
The euro-bloc manufacturing composite index held at 46, the same reading as in May, London-based Markit Economics said Thursday in an initial estimate. That matches the lowest since June 2009. Economists had forecast a drop to 45.5, the median of 15 estimates in a Bloomberg News survey showed.
“The weak PMI data we’ve seen from Europe is weighing on the euro,” said Ian Stannard, head of European currency strategy at Morgan Stanley in London. “The growth outlook is coming into question. There is plenty to put the euro back under pressure.”
The European Central Bank earlier this month held its benchmark interest rate at a record low of 1 percent, while President Mario Draghi said “a few” policy makers called for a cut. The central bank’s next rates decision is scheduled for July 5.
Meanwhile, European finance ministers are set to meet in Luxembourg Thursday to discuss the currency union’s financial woes.
The euro is down from this year’s high of $1.3487 on Feb. 24 and has depreciated about 6.9 percent in the past 12 months, according to Bloomberg Correlation-Weighted Indexes that measure 10 developed-market currencies.
Barclays said in its global outlook published Thursday that selling the euro is the most compelling trade in the foreign-exchange market. The company forecast that the currency will weaken to $1.15 in the coming year.
The dollar strengthened versus most of its major counterparts even after the Federal Reserve said Wednesday it stood ready to implement further stimulus following the announcement of an extension to its program to replace short-term bonds with longer-term debt.