The euro dropped to its lowest level since 2001 against the yen and slid versus the dollar as speculation German Chancellor Angela Merkel is preparing for a Greek default curbed demand for the shared currency. The Dollar Index, which tracks the greenback against six U.S. trading partners, climbed for a third day to its strongest level in more than six months as investors bought the safest assets. The yen advanced versus all of its 16 major counterparts. The Australian and New Zealand dollars weakened as Asian stocks extended a global slump in equities and amid reports France’s three largest banks may have their credit ratings lowered. “There’s a lot of chatter about Greece defaulting and either leaving or getting kicked out of the euro,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington. “There’s event risk and uncertainty around whether or not the sovereign-debt crisis is reaching a point where things are going to boil over. The euro is coming off pretty aggressively.” The 17-nation euro dropped 0.6 percent to 105.35 yen at 12:36 p.m. in Tokyo from 105.99 yen in New York on Sept. 9 and earlier slid to 104.92, the least since July 2001. It fell to $1.3555, the least since Feb. 22, before trading at $1.3590 from $1.3656. The yen traded at 77.51 per U.S. dollar from 77.61. IntercontinentalExchange Inc.’s Dollar Index rose 0.3 percent to 77.456 after touching 77.551, the most since Feb. 23. Australia’s dollar fell to $1.0381 from $1.0470 and New Zealand’s currency dropped 0.6 percent to 81.72 U.S. cents. Stocks Slump The MSCI Asia Pacific Index of stocks dropped 2.1 percent. The Standard & Poor’s 500 index slumped 2.7 percent on Sept. 9 and the Stoxx Europe 600 Index lost 2.6 percent. Officials in Merkel’s government are debating how to shore up German banks in the event that Greece fails to meet the budget-cutting terms of its aid package and is unable to get a bailout-loan payment, three coalition officials said Sept. 9. German threats have escalated this month that Greece won’t get the money unless it meets fiscal targets, spurring investors to increase bets on a default. Merkel holds talks with European Commission President Jose Barroso today in Berlin. “It feels like Germany is preparing itself for a debt default,” Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London, said in an interview. “Fatigue is setting in. Germany could be a first mover or other countries could be preparing too.” Germany’s Plan Germany will decide on a course of action after receiving the results of a Greek progress report, a government spokesman said, speaking on the customary condition of anonymity. The Greek Cabinet voted yesterday to cut one month’s wages from all elected officials and impose an annual charge on all property for two years, Finance Minister Evangelos Venizelos told reporters. The measures will help the country meet deficit targets of 17.1 billion euros ($23.2 billion) this year and 14.9 billion euros in 2012. BNP Paribas SA, Societe Generale SA and Credit Agricole SA, France’s largest banks by market value, may have their credit ratings cut by Moody’s Investors Service as soon as this week because of their Greek holdings, two people with knowledge of the matter said. Moody’s placed the three banks’ ratings on review in June to examine “the potential for inconsistency between the impact of a possible Greek default or restructuring and current rating levels,” the rating company said at the time. Cuts are likely as the review period concludes, said the people, who declined to be identified because the matter is confidential. Safety Demand The dollar and yen advanced on speculation declining risk appetite is boosting demand for the two currencies as a refuge. “Investor risk aversion is highly likely to increase further, given the multitude of risks surrounding Europe’s situation this week,” said Tohru Sasaki, head of Japan rates and foreign-exchange research at JPMorgan Chase & Co. in Tokyo. “Against this backdrop, the yen, and to a lesser extent the dollar, may strengthen.” The yen gained 0.5 percent today, the best performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Currency Indexes. The dollar, the second- best, advanced 0.4 percent. The yen tends to appreciate during economic and financial turmoil because Japan’s current account surplus makes it less reliant on foreign capital. The dollar benefits as the world’s reserve currency. Obama Announcement President Barack Obama will send a legislative proposal to Congress today to enact a $447 billion package of tax cuts and spending aimed at boosting hiring, an administration official said, speaking on condition of anonymity because the schedule hasn’t been officially released. Obama is planning an announcement in the White House Rose Garden, the official said. The Australian dollar dropped to the lowest since Aug. 19 versus its U.S. counterpart after the nation’s trade surplus narrowed more than economists expected in July. Australia had a trade surplus of A$1.83 billion in July, the Bureau of Statistics said today. The median estimate in a Bloomberg News survey of 14 economists was for a surplus of A$1.9 billion. To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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