The euro fell the most in almost a week against the dollar and slid to a record versus the Swiss franc on concern European leaders will fail to agree on measures to contain the region’s debt crisis at a summit this week.
The 17-nation currency dropped for the first time in four days versus the yen after European Central Bank President Jean- Claude Trichet repeated his opposition to any restructuring of Greek debt. The franc strengthened for a seventh day against the euro as a decline in Asian and European stocks signaled increased demand for safer assets. Australia’s dollar weakened for a third day as traders added to bets the central bank will cut interest rates over the next 12 months.
“A decision on another Greek package seems no nearer,” Adrian Schmidt, a currency strategist at Lloyds Banking Group Plc in London, wrote in an investor report today. “The risks are for more weakness in peripheral bond markets and the euro being needed to concentrate politicians’ minds and force a decision.”
The euro dropped 1 percent to $1.4014, the biggest decline since July 12, and traded at $1.4022 as of 8:43 a.m. in London. The currency slid 1.2 percent to 110.73 yen, and weakened 0.8 percent to 1.1452 Swiss francs after sliding to a record low 1.1374. The franc weakened 0.2 percent to 81.69 centimes per dollar after reaching the strongest on record at 80.33 centimes. The dollar slipped 0.2 percent to 78.97 yen.
Brussels Summit
Euro-area leaders will meet in Brussels on July 21 to discuss the “financial stability” of the region, European Union President Herman Van Rompuy said in an e-mailed statement on July 15. The second summit in a month follows a worsening of the crisis that drove bond yields to euro-area records across Europe’s most debt-laden nations.
Italian 10-year bond yields rose seven basis points to 5.83 percent today, approaching the 7 percent mark that prompted its smaller euro partners to seek bailouts. Yields on notes from Ireland, Portugal and Greece rose to euro-era records last week.
“If a country defaults, we can no longer accept as normal eligible collateral defaulted bonds issued by the government of that country,” Trichet said in an interview with the Financial Times Deutschland, according to a transcript released by the Frankfurt-based ECB.
‘Skepticism’
The euro fell even after the European Banking Authority said July 15 that only eight out of 90 banks failed its stress tests. Regulators didn’t include a Greek default in the tests.
“It is skepticism regarding the result of the European stress-testing exercise,” said Sacha Tihanyi, a Hong Kong-based senior currency strategist at Scotia Capital. “It perhaps is not being seen as having sufficient rigor.”
Japan’s financial markets were shut today for a holiday.
The franc strengthened versus all of its 16 major counterparts on speculation the euro region’s debt crisis will slow global growth.
“There’s a lot of fear and uncertainty,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “Against this backdrop, safe-haven currencies are likely to be bought,” such as the franc, he said.
The MSCI Asia Pacific Index of shares dropped for a third day, losing 0.3 percent, while the Stoxx Europe 600 Index also declined 0.3 percent, led by banks and insurance companies.
Aussie Weakens
Even after the Swiss National Bank highlighted its ability last week to resume sales of the currency to stem gains that threaten overseas sales at companies including ABB Ltd., traders are pushing the franc higher. Strategists boosted their fourth- quarter median forecasts for the franc against the dollar by the most of 51 pairs tracked by Bloomberg.
Australia’s dollar declined versus its U.S. counterpart before the central bank releases minutes tomorrow of its July board meeting.
Traders are betting the Reserve Bank of Australia will lower its benchmark rate by 55 basis points over the next 12 months, compared with a prediction for 14 basis points of cuts a week ago, a Credit Suisse Group AG index showed today.
“There’s already a 30 percent chance of a rate cut priced for August 2” when the central bank holds a policy meeting, John Kyriakopoulos, head of currency strategy at National Australia Bank Ltd. in Sydney, wrote in a report today.
The Australian currency fell 0.4 percent to $1.0614, and lost 0.6 percent to 83.80 yen.
To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Paul Dobson in London at pdobson2@bloomberg.net.
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.
