BLBG:Euro Declines as European Finance Chiefs Fail to Reassure on Greek Debt
The euro dropped against the dollar and yen for a second day after European officials failed to offer a plan to halt the region’s debt crisis and as Greece struggles to avoid default.
The 17-nation currency slid against most of its 16 major peers before European Union and International Monetary Fund officials speak today with Greek Finance Minister Evangelos Venizelos to judge whether his government is eligible for its next aid payment. The U.S. currency rose as Asian stocks fell, spurring demand for the safest assets. The Australian dollar dropped against the greenback before the Reserve Bank is due to release tomorrow the minutes of this month’s policy meeting.
“The failure of the European finance ministers to come up with anything concrete is a huge disappointment for the markets,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington. “The euro is coming off and we’d expect that to carry on.”
The euro fell 0.9 percent to $1.3666 as of 12:17 p.m. in Singapore from $1.3796 in New York on Sept. 16. It declined to 105.11 yen from 105.95 last week. The dollar rose 0.2 percent to 76.91 yen.
IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against currencies including the euro, yen and pound, advanced 0.7 percent to 77.151.
The MSCI Asia-Pacific excluding Japan index of shares slumped 2 percent. Markets in Japan are closed today for a public holiday.
Greek Review
The IMF and EU are reviewing whether Greece can meet the conditions of its rescue loans and is eligible for the next payment due in October and for a second rescue package. They suspended their assessment earlier this month after discovering a hole in the budget.
German Finance Minister Wolfgang Schaeuble and Bundesbank President Jens Weidmann rejected using the European Central Bank to boost the euro-area rescue fund’s firepower, rebuffing a suggestion by U.S. Treasury Secretary Timothy Geithner.
“We don’t think that real economic and social problems can be solved by means of monetary policy,” Schaeuble told reporters on Sept. 17. “That has never been the European model and it won’t be.”
German investor confidence dropped in September, a report tomorrow will show, according to the median estimate of economists surveyed by Bloomberg News. The ZEW Center for European Economic Research in Mannheim will probably say that its index of investor and analyst expectations, which aims to predict developments six months in advance, plunged to minus 45 from minus 37.6 in August. That would be the lowest since December 2008.
Election Loss
Germany’s Social Democrats, the main opposition party nationally, extended their 10-year rule in the country’s capital after beating Chancellor Angela Merkel’s Christian Democrats into second place in a Berlin state election yesterday. Merkel’s Free Democratic coalition partner, known as the liberals, crashed out of a regional assembly for the fifth time this year.
Futures traders increased bets that the euro will decline against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 54,459 on Sept. 13, the most since July 2010.
‘Operation Twist’
The dollar rallied before the Federal Open Market Committee gathers tomorrow for a two-day meeting.
The committee may decide to replace some of the short-term Treasury securities in the Federal Reserve’s $1.65 trillion portfolio with long-term debt in a bid to lower rates on everything from mortgages to car loans, according to economists at Wells Fargo & Co., Barclays Capital Inc. and Goldman Sachs Group Inc. Some analysts dub the maneuver “Operation Twist” because it would bend long-term yields lower.
“The FOMC are backing up everything they’ve said on a month-by-month basis,” said Kurt Magnus, executive director of currency sales in Sydney at Nomura Holdings Inc., Japan’s biggest brokerage. “They’re not going to let the market down. The dollar will be outperforming the euro while Europe’s still in turmoil.”
‘Premium Safe Haven’
The dollar also held on to gains as investors bought the currency as a refuge amid a decline in Asian stocks.
“With the yen and the Swiss franc kind of closed off because of central-bank intervention, that leaves the U.S. dollar to be the premium safe haven for now,” said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia, the nation’s biggest lender. Risk aversion will “keep the U.S. dollar well-bid and put downward pressure on equity markets globally,” he said.
The yen extended gains against the euro into a second day, even as Japan’s government indicated it may act to curb currency appreciation.
Japan may outline measures to counter the strong yen as early as tomorrow, Economic Policy Minister Motohisa Furukawa suggested in remarks yesterday, Kyodo News reported. The package will be aimed at reducing the negative impact of the currency’s gains on domestic businesses, according to the report.
The yen has appreciated 6.9 percent in the past three months, the best performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar, the third best, has gained 2.2 percent.
Australian Rates Outlook
Australia’s dollar snapped two days of gains versus the greenback on concern the RBA will signal interest-rate cuts in its September meeting minutes to be released tomorrow, curbing demand for the South Pacific nation’s currency.
“If they touch on the possibility of an interest-rate cut,” the Aussie will be punished, said Imre Speizer, a strategist in Auckland at Westpac Banking Corp., Australia’s second-largest lender.
The central bank left its cash target unchanged at 4.75 percent at the Sept. 6 gathering. Traders are pricing in at least a 75-basis-point cut to the bank’s key rate by year-end, cash-rate futures show.
The so-called Aussie lost 1.2 percent to $1.0239 and dropped 1 percent to 78.75 yen.
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: Garfield Reynolds at greynolds1@bloomberg.net
