BLBG: Euro Drops Against Dollar as Talks Begin on Aid for Greece
By Ben Levisohn and Paul Dobson
April 21 (Bloomberg) -- The euro dropped against the dollar for a fifth straight day in the longest stretch of decreases since January as talks began on a 45 billion euro ($61 billion) aid package for debt-strapped Greece.
The yen erased its decline versus the euro as U.S. stock- index futures reversed their gain. The yield premium investors demand to hold Greek 10-year bonds instead of benchmark German bunds climbed to 5.01 percentage points, the highest since at least March 1998.
“The Greece story won’t go away,” said Alan Ruskin, head of currency strategy at Royal Bank of Scotland Group Plc in Stamford, Connecticut. “The package hasn’t assuaged the longer- term fears of default. People are looking at alternatives to the euro.”
The euro decreased 0.4 percent to $1.3379 at 7:31 a.m. in New York, from $1.3435 yesterday, after falling to $1.3364, the lowest level since April 9. The yen appreciated 0.6 percent to 124.51 per euro, from 125.24, after earlier declining 0.2 percent. The dollar fell 0.2 percent to 93.07 yen, from 93.22.
Representatives from Greece, the euro region, the International Monetary Fund and the European Central Bank met to discuss deficit-reduction measures Greece will have to accept before tapping financial assistance.
Greece’s deficit of 12.9 percent of gross domestic product is four times the European Union limit. Budget shortfalls across the euro region have surged as governments bailed out banks and spent billions on economic stimulus.
‘Spillover Effects’
“There’s a continuation of the problems within the euro zone with regard to possible Greek spillover effects,” said Ian Stannard, a foreign-exchange strategist at BNP Paribas SA in London.
The euro may slump toward the lowest level this year versus the dollar and underperform Asian currencies as reduced spending in debt-ridden nations damp the region’s growth, State Street Global Advisors said.
Economists now expect the ECB won’t start raising interest rates until next year as countries including Greece, Portugal and Spain struggle to curb their sovereign debt. In contrast, the Federal Reserve may lift its benchmark rate as early as November, while policy makers in India and Malaysia started withdrawing monetary stimulus this year.
“The market will focus on the different growth rates between Europe and the rest of the world, particularly North America and Asia, and that will weigh on the euro,” said Chris Loong, head of currency management and asset allocation in Sydney at State Street. “Austerity packages and commitments by Greece and other European nations to tighten their belts could mean lower growth prospects.”
