BLBG: Euro Set for Worst Week Since Start of February on Greece Woes
By Candice Zachariahs and Ron Harui
March 19 (Bloomberg) -- The euro is set for its biggest weekly loss since the start of February as concern Greece will fail to secure financial assistance from the European Union damped demand for the currency.
The euro slid this week versus 15 of its 16 major peers as Greece set a deadline for an aid mechanism from the European Union while Germany said the International Monetary Fund may be the better option. New Zealand’s dollar led gains this week before a report likely show its economy expanded the most since December 2007 last quarter. The yen weakened today as gains in stocks curbed demand for the currency as a refuge.
“Reports on inter-governmental relations between Greece and Germany will be the major driver of the euro, and they’re likely to keep bickering,” said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney. “We can see euro falling down to the low $1.30s” within a week.
The euro traded at $1.3619 as of 2:04 p.m. in Tokyo after yesterday dropping 1 percent to $1.3608 in New York, the steepest drop on a closing basis since Feb. 17. The currency is set for a five-day loss of 1.1 percent, the most since the week ended Feb. 5. It bought 123.19 yen from 122.99 yen. The dollar gained to 90.44 yen from 90.39 yen.
Greek Prime Minister George Papandreou said yesterday he may turn to the IMF to overcome his nation’s debt crisis unless EU leaders agree to set up a lending facility at a March 25-26 summit. The IMF option was dismissed by French President Nicolas Sarkozy and European Central Bank President Jean-Claude Trichet, who said it would show the EU can’t solve its own crises.
Merkel on IMF
Chancellor Angela Merkel told parliament on March 17 the IMF may be the only answer to Greece’s fiscal problems. Greece needs to raise about 10 billion euros ($14 billion) to refinance bonds due on April 20 and May 19. Papandreou said the nation can’t afford to keep paying current market rates.
“Don’t underestimate the game of chicken that’s being played right now between Greece, the EU and the IMF,” Mohamed El-Erian, co-chief investment officer at Pacific Investment Management Co., told Bloomberg Radio yesterday. “I suspect at the end of the day, the IMF will come in, but it’s going to be a bumpy process.”
European equity funds posted net outflows of $1.06 billion in the week ended March 17, the biggest withdrawals since May 2009, EPFR Global said today in a statement.
N.Z. Growth
New Zealand’s dollar headed for its biggest weekly gain since December versus Australia’s currency. Its statistic bureau will probably say March 25 that the New Zealand economy expanded 0.8 percent in the last quarter, according to a Bloomberg survey of economists, the fastest rate since the last quarter of 2007.
The Reserve Bank of New Zealand will raise its target rate by 169 basis points over the next year, compared with 116 points in Australia, according to Credit Suisse AG indexes based on swaps trading.
The yen today fell versus 12 of 16 major counterparts as Asian stocks gained amid signs the global economic recovery is gathering momentum, boosting demand for riskier investments.
German producer prices rose for a second month, gaining 0.1 percent in February, according to a Bloomberg survey before the Federal Statistics Office releases the data today. Canada’s retail sales climbed 0.6 percent in January, a separate survey showed before Statistics Canada releases the report today.
“Equities are gradually rising, underpinning risk-taking sentiment,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd. “Worries over the outlook for the worldwide rebound seem to be easing. The bias is for the yen to be sold.”
Japan’s Nikkei 225 Stock Average rose 0.6 percent today, while the MSCI Asia Pacific Index climbed 0.5 percent.
Yen Redenomination
Japanese Prime Minister Yukio Hatoyama considered a redenomination of the yen when he took office in September, the Nikkei newspaper reported, citing a person close to Hatoyama. The change would have involved cutting one or two zeros from the currency, the report said.
Redenomination was considered “as one of the measures to encourage some domestic demand,” said Susumu Kato, Tokyo-based chief Japan economist at Credit Agricole Securities Asia. “Although the economic effect of redenomination is not clear, Mr. Hatoyama considered it worthwhile to discuss.”
The Swiss franc strengthened 1.1 percent against the euro this week, its biggest five-day gain since December 2009, as Swiss National Bank Governing Board member Jean-Pierre Danthine said yesterday policy makers can’t keep borrowing costs near zero for an extended period of time and maintain purchases of foreign currencies indefinitely.
The SNB, led by Philipp Hildebrand, has purchased foreign currencies over the past year to combat the threat of deflation and support an export-led recovery. The Swiss currency traded at 1.4404 per euro after touching 1.4356 yesterday, the strongest level since October 2008.
To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.
