The euro declined to a six-month low against the dollar on speculation the European Central Bank will cut interest rates amid slowing global growth and the region’s deepening debt crisis. The 17-nation currency weakened versus 12 of its 16 major counterparts as German bond yields dropped to an all-time low, and Greek rates climbed to the most on record. The Dollar Index advanced to an eight-week high as stocks declined, stoking demand for safer assets. Sweden’s krona strengthened for a fourth day against the euro after the nation’s industrial output exceeded economists’ forecasts. “We’ve reached a turning point,” said Simon Derrick, chief currency strategist at Bank of New York Mellon in London. “There should be a shift in demand for the euro with a shift in the monetary-policy stance. Should the euro be offered? Absolutely.” The currency may fall as low as the high $1.20s, he said. The euro depreciated 0.5 percent to $1.3812 as of 7:37 a.m. in New York, after dropping to $1.3789, the lowest level since March 11. The currency has slumped 2.8 percent this week, the most since the period ended May 6. The euro slipped 0.1 percent to 107.45 yen. The dollar gained 0.4 percent to 77.78 yen. The ECB left its benchmark rate at 1.5 percent yesterday and cut its 2011 and 2012 growth forecasts at a policy meeting in Frankfurt. Two-year German yields fell as much as five basis points to a record 0.385 percent, narrowing the difference in yield with similar-maturity U.S. debt to 22.7 basis points, the least since January based on closing-market rates. Rate Bets The implied yield on Euribor futures for June slid four basis points to 0.98 percent, showing traders were adding to wagers for lower borrowing costs. Investors should be “on alert” for a potential 50 basis-point cut in ECB rates, Barclays Plc economists Julian Callow and Francois Cabau wrote in an investor report yesterday. Greek bond yields reached record highs as the country endeavors to show it can reach budget-cutting targets to receive financial aid. The nation is seeking preliminary responses today from bond investors to the proposed debt swap, part of a 159 billion-euro European Union rescue plan agreed upon in July. The euro may fall to $1.30 in coming weeks, the lowest since January, as European banks suffer from falling values in their holdings of government debt, according to Stephen Jen, a managing partner at SLJ Macro Partners LLP in London. Many banks would be considered insolvent if forced to mark their sovereign debt to market, he said in a note sent to clients yesterday. Dollar Gains The Dollar Index, which tracks the greenback versus the currencies of six U.S. trading partners, gained for a second day, adding 0.5 percent to 76.587. It earlier reached 76.684, the highest level since July 12. “The story is simply that the dollar is picking up a bit because there are very few places where you can run and hide,” said Sebastien Galy, a senior currency strategist at Societe Generale SA in London. “You’re not getting any yield in Europe. It does suggest more dollar demand.” The krona appreciated 0.4 percent against the euro to 8.8958, after reaching 8.8706, its strongest since April 25. Swedish industrial production rose 2.8 percent in July from the previous month, the government said today. Production was forecast to increased 0.4 percent, according to a Bloomberg survey of eight economists. Swiss Franc The Swiss franc headed for a 7.8 percent weekly loss versus the euro, having fallen by a record amount on Sept. 6, when the central bank set a ceiling for the currency and said it would use “unlimited” quantities of cash to cap any gains. It fell 0.2 percent today to 1.21750. Demand for the yen was tempered before finance ministers from the Group of Seven nations meet today in Marseille, France, to discuss ways to bolster their economies. Japanese Finance Minister Jun Azumi said before departing from Tokyo that he would appeal to the group to appreciate his concern about excessive yen gains. Japan has intervened in the currency markets three times in the past 12 months to weaken the yen, with the last operation being a 4.51 trillion-yen action in August, the largest monthly amount since March 2004. The yen went on to reach 75.95 per dollar on Aug. 19, a postwar record. Japan’s gross domestic product shrank at an annualized 2.1 percent rate in the three months ended June 30, more than the 1.3 percent contraction reported last month, the Cabinet Office said today. To contact the reporters on this story: Paul Dobson in London at pdobson2@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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