The euro fell below $1.30 for the first time in a month and weakened versus the yen on speculation disagreement is deepening among European Central Bank policy makers on measures needed to combat the recession. The 16-nation currency declined against the Swiss franc after Financial Times Deutschland cited ECB Executive Board member Lorenzo Bini Smaghi as saying the bank’s 1.25 percent target lending rate is “very close” to its floor. The yen and dollar rose against all of the other major currencies on increased demand for safety. “The ECB is the focal point,” said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. “People are looking for reasons to sell the euro. We are seeing a significant liquidation of the trades that outperformed in recent weeks as we are moving back to risk aversion.” The euro dropped 1 percent to $1.2917 at 10:06 a.m. in New York, from $1.3044 on April 17. It earlier fell to $1.2907, the lowest level since March 16. Europe’s currency slid as much as 1.5 percent to 127.29 yen, the lowest level since March 30, before trading at 127.37, compared with 129.33 last week. The euro lost 0.2 percent to 1.5170 francs. The yen gained 0.7 percent to 98.45 per dollar from 99.16. A break of $1.2946, a 61.8 percent retracement of the European currency’s 8 percent advance from March 4 to March 19, indicates it will decline to “mid-$1.27,” Osborne said. The yen appreciated 2.1 percent to 55.15 per New Zealand dollar and 3.2 percent to 69.41 per Australian dollar as stocks declined on speculation U.S. banks face more losses, reducing speculation investors will buy higher-yielding assets. Stress Tests President Barack Obama said yesterday he will demand “accountability” from any U.S. banks that require additional taxpayer money following “stress tests” being conducted by regulators. The tests are being used to determine whether the companies have enough capital to cover losses over the next two years should the recession worsen. The Federal Reserve plans to give results May 4. The Australian dollar fell as much as 2.5 percent to 70.41 U.S. cents, the biggest intraday decline since Feb. 10. The Canadian dollar dropped as much as 1.9 percent to C$1.2362 per U.S. dollar, the weakest level since April 9. Europe’s Dow Jones Stoxx 600 Index slipped as much as 3 percent, the most since March 30, and the Standard & Poor’s 500 Index fell 2.1 percent. The euro dropped to a three-week low versus the yen on signs the recession in the 16-nation region is deepening. The contraction in Germany, Europe’s largest economy, worsened in the first quarter, the country’s central bank said. ‘Recessive’ Trend “The recessive underlying trend in the German economy deepened after real gross domestic product fell by 2.1 percent” in the three months to December, the Frankfurt-based Bundesbank said in its monthly bulletin today. Bini Smaghi, asked if he favors cutting the benchmark rate to 1 percent and leaving it there, said “it would be more credible to act that way,” according to Financial Times Deutschland. Council members George Provopoulos from Greece and Athanasios Orphanides of Cyprus have indicated they may support cutting the target rate to less than 1 percent and buying debt to pump money into the economy. The ECB’s next meeting is May 7. ECB President Jean-Claude Trichet said in Tokyo yesterday he wouldn’t exclude another “very measured” rate cut, though a zero interest-rate policy wouldn’t be appropriate for the bank. The Swedish krona fell for a fourth day versus the euro, dropping 0.7 percent to 11.1033. The Riksbank may halve the benchmark repo rate to a record low of 0.5 percent tomorrow, according to the median forecast in a Bloomberg survey. Currency Volatility Gains in the yen may be tempered after the JPMorgan Chase & Co. benchmark index of investor expectations for currency swings dropped to a six-month low of 14.4 percent on April 17. Lower currency volatility indicates smaller exchange-rate fluctuations that can erode profit on carry trades, in which funds are borrowed in countries with lower interest costs, such as Japan, and invested in nations with higher rates, allowing investors to pocket the difference. “Big currency moves are behind us,” said Maxime Tessier, chief of foreign exchange at Montreal-based Caisse de Depot et Placement du Quebec, Canada’s biggest pension-fund manager, with about $99 billion in assets. “The volatility spike has to unwind itself over time. Selling volatility has been the winning trade so far this year and will continue to work well.” The benchmark interest rate is 0.1 percent in Japan and as low as zero in the U.S., compared with 3 percent in Australia and in New Zealand.

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