BLBG: Euro Weakens as German Lawmaker Says Greece Should Turn to IMF
By Keith Jenkins and Candice Zachariahs
March 18 (Bloomberg) -- The euro weakened for a second day against the dollar and yen amid concern Greece will fail to secure financial assistance from the European Union, reducing the appeal of assets in the 16-nation region.
Europe’s currency fell versus 15 of its 16 major peers. Michael Meister, the chief finance spokesman for German Chancellor Angela Merkel’s Christian Democratic Union party, said yesterday Greece should turn to the International Monetary Fund if it needs aid, signaling a rift with European leaders Jean-Claude Trichet, Jean-Claude Juncker and Nicolas Sarkozy. The yen rose after a China Securities Journal report said regulators forced banks to stop lending to some developers. The Swiss franc strengthened for a fifth day.
“The euro is weakening as investors are questioning whether there really is a plan to support Greece,” said Simon Derrick, chief currency strategist at BNY Mellon Corp. in London. “From an investor’s perspective, do you feel comfortable, in these circumstances, being heavily invested in peripheral Europe?”
The euro fell to $1.3676 at 9:26 a.m. in London from $1.3738 in New York yesterday. It has declined as much as 0.9 percent against the U.S. currency since March 16, dropping earlier as low as $1.3648. It slid to 123.09 yen from 124.06 yen. The dollar slipped to 90.01 yen from 90.31 yen.
‘Pressure and Uncertainty’
The German shift underscores Merkel’s attempts to steer clear of any commitment to a Greek bailout and risks scuttling EU efforts to establish a contingency plan for the debt-strapped nation. Merkel used a budget speech yesterday to caution against any “overly hasty” pledges of financial aid for Greece, as Prime Minister George Papandreou kept alive the possibility of requesting IMF help.
“All this keeps the pressure and uncertainty on the euro in focus,” said Justin Smirk, chief economist at St. George Bank Ltd. in Sydney. “The euro is not exactly a shining light for the U.S. dollar to weaken against. We see a stronger dollar and weaker euro over the next few months.”
The euro may fall further versus the U.S. currency, with a break through $1.3650 signaling a move toward $1.3400 or beyond in coming weeks, Derrick said.
“There’s a very deep split between Germany and France in terms of the way forward,” he said. “If there were a plan, I think we would have heard details, because that’s the obvious thing you do to calm sentiment.”
The yen and dollar also rose on revived demand for safer assets on concern China is taking steps to rein in lending, sending stocks and higher-yielding currencies lower. The MSCI World Index ended two days of gains, declining 0.2 percent, as every major stock market in Europe fell.
China Bank Move
The China Securities Journal said today, citing an unidentified person, the government has banned banks from providing loans to developers found to be hoarding land or holding back apartment sales to wait for higher prices. China Business News cited Andrew Sheng, chief adviser to the nation’s bank regulator, as saying the country should impose a tax on foreign-exchange transactions to help curb “hot money.”
“Worries over further monetary tightening in China and political discord within Europe over a rescue package for Greece are sparking risk aversion,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “This is leading to buying of the yen and the dollar and selling of the euro.”
The franc rose against the euro, making its streak of gains the longest since September, amid speculation the Swiss National Bank is relaxing its resistance to the currency’s gains. The franc traded at 1.4468 per euro, having advanced earlier to 1.4459 per euro, the strongest level since October 2008.
SNB Board member Jean-Pierre Danthine is scheduled to speak today, the first policy maker to do so since the central bank’s meeting last week.
Canadian Dollar
The bank left its benchmark interest rate unchanged at 0.25 percent on March 11 and said and it will “act decisively to prevent an excessive appreciation of the Swiss franc.”
Declines in Canada’s dollar were limited on speculation that higher consumer prices will spur policy makers to increase borrowing costs. The so-called loonie traded at C$1.0126 to the U.S. currency after yesterday climbing to C$1.0071, its strongest level since July 2008.
Prices rose 0.3 percent in February from a month earlier, when they also climbed 0.3 percent, according to a Bloomberg News survey of economists before Statistics Canada releases the report tomorrow. The price of crude oil, Canada’s biggest export, has advanced 4.4 percent in the past month.
“The risk of inflation is greater in Canada than in the U.S., which means its central bank may hike rates sooner than the Federal Reserve,” said Akane Vallery Uchida, a currency strategist at Royal Bank of Scotland Group Plc in Tokyo.
RBS forecasts Canada’s dollar will rise to C$0.9900 per U.S. dollar and to 96 yen at the end of September, Uchida said.
The Bank of Canada said on March 2 that inflation and economic output were higher than it expected, signaling policy makers are moving closer to raising the 0.25 percent target lending rate.
To contact the reporters on this story: Keith Jenkins in London at Kjenkins3@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net;
