The euroâ€™s three-month rally against all but one of its major peers is imperiled by a deepening credit crunch for European companies that adds to the risk of another recession as the regionâ€™s counterparts recover.
The currency has weakened 2.6 percent versus the dollar from a four-month high on Sept. 17 as small and medium-sized companies that Deutsche Bank AG says generate as much as 70 percent of the economy are starved of credit. Loans from European banks plunged in September by 0.8 percent from a year earlier. The last time lending contracted that much, in October 2009, the euro fell 5.8 percent in the following three months.
While European Central Bank President Mario Draghi has driven down speculation on the disintegration of the currency bloc, the median of 48 analyst estimates compiled by Bloomberg is for a drop of about 2.5 percent against the dollar by next September. Companies from Italian window maker Fenster Group Srl to Faustino e Ferreira, a Portuguese building materials firm, say they canâ€™t get financing to expand.
â€œDraghiâ€™s action has reduced sovereign risk but itâ€™s not enough to improve the credit conditions in the periphery,â€ Athanasios Vamvakidis, the head of Group-of-10 foreign-exchange strategy at Bank of America Merrill Lynch in London, said in a Nov. 1 phone interview. â€œPrivate-sector credit growth continues to be negative and lending rates remain a problem. This will continue affecting the euro.â€
The 17-nation common currency touched $1.2815, the weakest since Oct. 1, before trading at $1.2825 as of 2:03 p.m. in Tokyo, down 0.1 percent from the close in New York last week. The euro slid 0.1 percent to 103.14 yen from Nov. 2, when it dropped 0.5 percent.
The euro has slipped from as high as $1.3172 on Sept. 17 as Spanish Prime Minister Mariano Rajoy delayed a decision on whether to accept Draghiâ€™s offer to buy bonds to cut borrowing costs. Itâ€™s still up from this yearâ€™s low of $1.2043 on July 24, when Spainâ€™s surging yields threatened to shut the regionâ€™s fourth-largest economy out of financial markets.
After Draghi unveiled his bond-purchase plan on Sept. 6, strategists surveyed by Bloomberg lifted their median euro prediction for the third quarter of 2013 to $1.25 from as low as $1.21 on Sept. 18.
Bank of America is more pessimistic, Vamvakidis said, calling for the euro to decline to $1.23 by the end of this year and to $1.20 in the third quarter of 2013 because the ECB will have to do more to tackle the squeeze on lending.
Via – Bloomberg