BLBG:Euro Weakens as Finance Chiefs Fail to Offer Plan for Greece; Dollar Gains
The euro weakened for a second day against the dollar and yen 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 approached a 10-year low versus the yen before European Union and International Monetary Fund officials meet today with Greek Finance Minister Evangelos Venizelos to judge whether his government is eligible for its next aid payment. The dollar rose against all its major counterparts as stocks fell, spurring demand for safer assets. Australia’s currency declined before the central bank releases minutes of this month’s policy meeting tomorrow.
“With little progress, and still plenty of uncertainty, the market will remain nervous” about the situation in Greece, said Adrian Schmidt, a foreign-exchange strategist at Lloyds Banking Group Plc in London. “That should weigh on euro- dollar.”
The euro fell 0.9 percent to $1.3667 at 9:48 a.m. in London, after declining 0.6 percent on Sept. 16. The currency weakened 0.8 percent to 105.09 yen, after sliding to 103.90 on Sept. 12, the lowest level since June 2001. The dollar was little changed at 76.87 yen.
IntercontinentalExchange Inc.’s Dollar Index, which tracks the U.S. currency against six counterparts including the euro, yen and pound, advanced 0.8 percent to 77.119.
The Stoxx Europe 600 Index fell 2.1 percent and the MSCI Asia-Pacific Index excluding Japan, where markets are shut today for a holiday, slumped 2.7 percent.
Greek Review
After a two-day meeting of EU finance ministers and central bankers that ended Sept. 17, Sweden’s Anders Borg said Greece hasn’t done enough to meet its budget targets.
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.
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 package. They suspended their assessment earlier this month after discovering a hole in the budget.
“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.”
Confidence Drops
Economists predict a report tomorrow will show German investor confidence fell to the lowest since December 2008. The ZEW Center for European Economic Research will say its index of investor and analyst expectations, which forecasts developments six months in advance, dropped to minus 45 for September from minus 37.6 in August.
Germany’s Social Democrats, the main national opposition party, 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 crashed out of a regional assembly for the fifth time this year.
Futures traders increased bets the euro will depreciate against the dollar, figures from the 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 Index gained a second day before the Federal Reserve gathers tomorrow for a two-day meeting.
The Fed’s Open Market Committee may decide to replace some of the short-term Treasury securities in the central bank’s $1.65 trillion portfolio with long-term debt in a bid to lower borrowing costs, 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.”
Dollar Haven
The dollar also rallied as investors bought the currency as a refuge amid stock declines.
“Markets are finally embracing the U.S. dollar as safe haven,” Nordea Markets said in a research note today.
The yen extended gains against the euro 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 signaled in remarks yesterday, Kyodo News reported. The package will be aimed at reducing the negative impact of the currency’s gains on local 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 risen 2.1 percent.
Australia’s dollar snapped a two-day gain versus the greenback on speculation tomorrow’s minutes will show the Reserve Bank is considering lowering interest rates.
“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 at 4.75 percent on Sept. 6. 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 declined 1.2 percent to $1.0240, and dropped 1.1 percent to 78.68 yen.
To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Garth Theunissen in London gtheunissen@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
