The euro weakened against most of its major counterparts before European leaders begin a two-day summit in Brussels today to discuss Greece’s financing needs as the nation struggles to stave off default. The single currency dropped for a second day against the dollar on prospects Greek Prime Minister George Papandreou will face difficulty in getting parliamentary approval next week for a package of budget cuts and asset sales, needed to be eligible for a second round of aid. The dollar climbed against 12 of its 16 major peers after the Federal Reserve damped speculation of additional stimulus at a policy meeting yesterday. The Australian dollar declined as stocks fell. “The underlying debt issue in peripheral countries in Europe will continue to justify a risk premium on the euro,” said Geoff Kendrick, head of European currency strategy at Nomura International Plc in London. “Our view is that from a systemic perspective, losses from any debt restructuring look manageable. In the near-term, however, there are headline risks for the euro coming from the meeting.” The euro dropped 0.6 percent to $1.4269 as of 9:15 a.m. in London. The shared currency was 0.2 percent weaker at 115 yen. The dollar gained 0.4 percent to 80.57 yen. European finance chiefs will decide on July 3 whether Greece has met conditions for its next aid payment. Antonis Samaras, leader of the opposition in the Greek parliament, said his party will vote against the government’s new austerity measures, contrary to European Union calls for unity, the Financial Times reported, citing an interview. Flashing Red European Central Bank President Jean-Claude Trichet said risk signals for financial stability in the euro area are flashing red as the debt crisis threatens to infect banks. The link between debt problems and banks “is the most serious threat to financial stability in the European Union,” Trichet said late yesterday in Frankfurt after a meeting of the European Systemic Risk Board. Royal Bank of Scotland Group Plc said investors should sell the euro at $1.4420, betting it will weaken 9.8 percent to $1.30 by early 2012 as European inflation slows and Spain’s economy falters while U.S. growth rebounds. “Slower inflation pressures and an increasing risk of economic stagnation in Spain suggest less policy tightening and renewed sovereign risks” in Europe, Robert Sinche, global head of currency strategy in Stamford, Connecticut and Paul Robson, a senior foreign-exchange strategist in London, wrote in an investor report yesterday. Meanwhile, second-half growth should be “enough to push U.S. interest-rate expectations higher.” QE2 Ends The dollar advanced for a second day against the yen after the Fed refrained from debasing the currency further. Policy makers decided to keep the Fed’s balance sheet at a record to spur the economy after completing $600 billion of bond purchases this month in a second round of quantitative easing, or so- called QE2. They cut growth forecasts for this year and next and raised estimates for the unemployment rate. The dollar has lost 14 percent in the past 12 months, according to Bloomberg Correlation-Weighted Currency Indexes, which track the currencies of 10 developed markets, making it the worst performer. “There’s going to be no talk of QE3 over the next couple of months,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp, Australia’s second-largest lender. “Without any further stimulus signaled there’s a good chance it could be a negative for risky assets which means it could be positive for the U.S. dollar.” ‘Moderate’ Recovery The U.S. economy is recovering at a “moderate pace, though somewhat more slowly” than the central bank had expected, Fed Chairman Ben S. Bernanke said yesterday. New home sales dropped 4 percent in May after climbing 7.3 percent in April, the median estimate of economists surveyed by Bloomberg News showed before data today. Pacific Investment Management Co.’s Bill Gross, manager of the world’s biggest bond fund, said yesterday in a Twitter posting the Fed may signal in August plans for additional monetary stimulus. The central bank is likely to hint at another round of quantitative easing and interest rate caps at its annual symposium in Jackson Hole, Wyoming, Gross said. Australia’s dollar, known as the Aussie, weakened for a second day versus the greenback as Asian stocks slumped, reducing demand for higher-yielding assets. The Reuters/Jefferies CRB Index of raw materials slid 0.1 percent yesterday. “As commodities and stocks fall, the Aussie seems to be becoming top-heavy,” said Nobuhiko Akai, senior manager of the foreign-exchange trading department at Bank of Tokyo-Mitsubishi UFJ Ltd. The Aussie declined to $1.0536 from $1.0575 in New York yesterday. The MSCI Asia Pacific Index of regional shares dropped 0.9 percent, while futures on the Euro Stoxx 50 declined 0.9 percent. To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net; To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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