By William L. Watts and Sarah Turner, MarketWatch
FRANKFURT (MarketWatch) — The euro declined to a 10-year low versus the safe-haven Japanese yen and lost ground versus other major rivals Monday on fears of a downgrade for French banks and signs that Germany is preparing for a default by Greece.
The euro EURJPY -0.55% traded at 104.14 yen in recent action, a decline of 1.3% from Friday. The euro dropped as low as ¥103.88, its lowest level since mid-2001.
The euro EURUSD +0.13% changed hands at $1.3588 versus the dollar, down from $1.3659. in late North American trading.
French banks were under heavy pressure in European equity trading, with the BNP Paribas S.A. FR:BNP -13.26% , Credit Agricole S.A. FR:ACA -9.59% and Societe Generale S.A. FR:GLE -10.17% each posting double-digit percentage losses.
A Bloomberg News report on Saturday said the three banks could face a downgrade from Moody’s due to exposure to Greek sovereign debt. Read Europe Stocks.
“The euro is now better correlated versus the credit quality of banks rather than peripheral bond spreads, but inherently the two are very much inter-linked with the sovereign crisis squarely behind the current banking crisis,” said Simon Smith, chief economist at FxPro in London, in emailed comments. “The euro’s Teflon coating, which protected it so well over the past year, appears to be flaking off rapidly.”
The euro slipped Friday after Juergen Stark, a German member of the ECB’s six-member executive board, resigned unexpectedly. The ECB said Stark stepped down for “personal reasons, “ but news reports tied the move to discord within the ECB over the bank’s bond-buying program.
Meanwhile, news reports said German officials have been preparing for a potential Greek default.
“Should Greece be forced to default, the news would no doubt push EUR/USD lower in the near term as speculators sell the unit in knee-jerk fashion, but the currency may actually rebound over the intermediate term horizon as [the] monetary union gets rid of its weakest credit risk,” said Boris Schlossberg, director of currency research at GFT. “In the meantime, the uncertainty over the events on the ground will likely keep trade highly volatile for the rest of this week.”
The dollar index DXY +0.21% , which measures the greenback against a basket of six other currencies, gained ground as the greenback found some safe-haven support as Asian equities dropped and European shares came under pressure, analysts said. The index traded at 77.511, up from 77.175 in late North American trading on Friday. Read more on Stark resignation.
The weekend meeting of Group of Seven finance ministers and central bankers in France provided no concrete plan to address fears over weakening global growth or rising currency tensions. A joint statement said the G-7 would take “all necessary actions to ensure the resilience of banking systems and financial markets.”
The dollar USDJPY -0.68% lost ground to the yen to trade at ¥76.85, down from ¥77.48 late Friday.
The British pound GBPUSD +0.05% traded at $1.5822, down from $1.5877.
William L. Watts is a reporter for MarketWatch in Frankfurt.
