The euro dropped to the lowest level in four months versus the yen and the dollar after a meeting of European Union finance ministers failed to defuse the region’s escalating debt crisis. The 17-nation currency pared losses against its major counterparts after Luxembourg Finance Minister Luc Frieden said selective default on Greek debt isn’t an option “envisaged” by euro-region finance ministers. The yen reached its strongest level against the dollar since the Group of Seven nations jointly intervened to weaken the currency following the March 11 earthquake as stock futures fell. “Sentiment is fairly extreme at this point and it’s not obvious that European officials are going to do anything to turn sentiment around,” said Alan Ruskin, global head of Group-of-10 foreign-exchange strategy at Deutsche Bank AG in New York. “Recently, the story has been more about Italy than Greece, but Greece is not a non-event.” The euro fell as much as 2.7 percent to 109.58 yen, the least since March 17, before trading at 111.68 at 9:02 a.m. in New York. It touched $1.3837, the weakest since March 11, before trading 0.3 percent lower at $1.3994. The 17-nation currency was 0.3 percent lower at 1.16915 Swiss francs after dropping to a record 1.15533. The dollar touched 79.17 yen, the lowest level since March 18. Greek Debt “It’s not an option that we envisaged,” Friden said today in Brussels when asked whether EU finance chiefs would consider allowing a selective default as part of their efforts to forge a second aid-package for Greece. “I am convinced that several weeks from now we’ll have a solution,” he said. The euro pared losses as futures on the Standard & Poor’s 500 Index rebounded after falling as much as 1.8 percent. “There was the Luxembourg finance minister that came out and said there will be no country defaulting and it looks like that is what is behind this move higher in the euro,” said Jessica Hoversen, a New York-based analyst at the futures broker MF Global Holdings Ltd. “That will be short-lived, in my opinion.” The euro has fallen against all but one of its 16 major peers tracked by Bloomberg this month as the most recent flare- up in the debt crisis sapped confidence in the currency, even as the European Central Bank increased its benchmark interest rate. It fell to a record low versus the Swiss franc as yields on Italian and Spanish debt rose for a second day. Reversal Measure The seven-day relative strength index for the euro versus the dollar declined to 23.15, the lowest since Nov. 30, falling below the 30 level for the third day. Readings below 30 indicate a currency’s decline may have gone too quickly and may be due for a reversal. European officials said after yesterday’s meeting that a bailout fund set up last year may be used to buy bonds in the secondary market or enable Greece to retire its debt at a discount. Dutch Finance Minister Jan Kees de Jager insisted on getting bondholders to roll over Greek debt, even if that results in the “selective default” opposed by the ECB. The dollar fell for a third day versus the yen before the Federal Reserve releases minutes today from its June meeting amid signs the U.S. recovery is faltering. The yen tends to strengthen during economic and financial turmoil because Japan’s trade surplus makes it less reliant on foreign capital. The dollar benefits as the world’s primary reserve currency. Kiwi Weak The New Zealand dollar fell against all 16 of its major peers as investors fled assets perceived to be more linked to economic growth. The kiwi fell as much as 2.2 percent to 81.10 U.S. cents, the lowest level since June 29, before trading at 82.01 U.S. cents. The euro fell below its 200-day moving average against the dollar, at $1.3909, crossing the technical-signal line for the first time since Jan. 12. One-month implied volatility on options for the euro-dollar exchange rate climbed to the highest level since Dec. 1. The rate rose to as high as 15.28 percent, before dropping back to 14.63 percent. The cost to protect against a drop in the euro against the dollar reached the most since June 2010. The so-called risk reversal rate on three-month options on the 17-nation currency versus the dollar had as much as a 3.31 percentage-point premium for contracts that grant the right to sell the euro over those allowing for purchases. That’s the most since June 8, 2010. To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; Paul Dobson in London at pdobson2@bloomberg.net. To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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