By Ben Levisohn and Keith Jenkins March 23 (Bloomberg) -- The euro fell toward a three-week low against the dollar amid speculation European Union leaders will fail to agree on an aid package for Greece at a summit this week, stoking demand for the U.S. currency as a refuge. The euro weakened versus 12 of 16 most-traded currencies after European Central Bank President Jean-Claude Trichet spoke out against offering the low-interest loans for which the Greek government has pressed. The Swiss franc was near a record high. The pound slid after U.K. inflation slowed last month by more than forecast. “Continued bickering back and forth between EU officials is highlighting the lack of cohesion within the bloc,” said Omer Esiner, a senior currency analyst at Travelex Global Business Payments. “That is ultimately undermining demand for the single currency, and we’re seeing the dollar benefit as a safe haven.” The euro depreciated 0.4 percent to $1.3499 per euro at 8:36 a.m. in New York, from $1.3558 yesterday, when it touched $1.3464, the lowest level since March 2. The euro fell 0.2 percent to 121.98 yen, from 122.21 yen. The dollar advanced 0.3 percent to 90.37 yen, from 90.14 yen. The U.S. currency gained against all 16 of its major counterparts tracked by Bloomberg except Brazil’s real. Trichet’s demand for stringent terms and German Chancellor Angela Merkel’s push for sanctions against nations that breach deficit limits heightened chances that Greece will leave a March 25-26 summit empty-handed. Prime Minister George Papandreou said he’ll turn to the International Monetary Fund for aid if needed. ‘No Concessionary Element’ The ECB chief told lawmakers in Brussels yesterday that there should be no “subsidy element, no concessionary element” in a potential loan to Greece. Merkel said in Berlin there’s no need for EU leaders to make any “concrete decisions” on Greek aid this week. Luxembourg’s Jean-Claude Juncker, who heads the group of euro-region finance ministers, said the EU won’t “abandon” Greece. “The continued uncertainty about the resolution is triggering a medium-term asset allocation shift away from euros,” said Jens Nordvig, a managing director of currency research in New York at Nomura International Plc, who forecasts the euro to trade as low as $1.25 by year-end. “It’s the longer-term players that are changing how they invest in the euro zone.” The Bank of Greece said in its 2009-2010 monetary policy report yesterday that the Greek economy may shrink 2 percent this year, more than twice the government’s latest forecast, as austerity measures to curb Europe’s biggest budget deficit take hold. The nation’s budget deficit for 2009 may be 12.9 percent, more than four times the EU’s 3 percent limit, it said. ‘Serious Challenges’ Banks will face “serious challenges” as the economic slump deepens and will need to diversify their sources of funding as the ECB withdraws some emergency financing, the Athens-based bank said. The euro may fall toward $1.20 for the first time since March 2006, according to BlueGold Capital Management LLP, as the Greek crisis forges a split in monetary policy between the ECB and the Federal Reserve. “This policy divergence is one of the central pillars of my view going forward,” said Stephen Jen, managing director of hedge-fund manager BlueGold in London and a former chief currency strategist at Morgan Stanley. “It is one more reason for investors to be cautious about the euro.” The franc climbed against the euro even after Swiss National Bank President Philipp Hildebrand reiterated today that policy makers are ready to act “decisively” to counter any “excessive” gains by the currency. It touched a record 1.4309 against the euro yesterday. ‘Deflation Threats’ “For Switzerland, we can’t fully rule out deflation threats in the case of renewed external shocks,” said Hildebrand, who took over as head of the SNB in January. “An excessive appreciation of the franc against the euro would for example be such a shock. That’s why we’ll decisively counter any excessive” gains in the franc, he said. UBS AG, the world’s second-biggest currency trader, lowered its forecast for the euro against the Swiss franc yesterday, forecasting that the common European currency will buy 1.42 francs in one month and 1.40 francs in three months. “The justification for large-scale interventions is fading fast with deflation disappearing and economic indicators strong,” analysts including Mansoor Mohi-uddin in Singapore, wrote in a report. The franc rose 0.2 percent to 1.4315 per euro. Pound Weakens The pound slid as a report from the Office for National Statistics showed U.K. consumer prices increased 3 percent from a year earlier, after rising 3.5 percent in January. The median forecast of 28 economists surveyed by Bloomberg was 3.1 percent. Sterling declined 0.6 percent to $1.5005, and weakened 0.2 percent to 89.94 pence per euro. Australia’s dollar slipped 0.3 percent to 91.57 U.S. cents. It may fall further to a two-week low after retreating from resistance, a chart level where orders may be clustered, at 92.52 cents, according to Pak Lai Ng, a currency strategist at Forecast Pte in Singapore. To contact the reporters on this story: Ben Levisohn in New York at blevisohn@bloomberg.net; Keith Jenkins in London at Kjenkins3@bloomberg.net;

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