The euro snapped a five-day gain versus the dollar and yen as Europe’s banks clashed with politicians on the size of losses they will accept on Greek bonds, lowering the likelihood of a deal at a summit tomorrow. The shared European currency fell from within one U.S. cent of a six-week high versus the dollar as European leaders prepared to meet for the second time in four days tomorrow in a bid to craft a solution to the region’s debt crisis. The Dollar Index dropped for a sixth day after Federal Reserve Bank of New York President William C. Dudley said the central bank may do more to hold down borrowing costs. New Zealand’s currency fell against all major peers after a report showed slowing inflation. “The market is in a wait-and-see mode until tomorrow’s summit,” said Chris Walker, a currency strategist at UBS AG in London. “People don’t want to be short the euro because if we do have a positive surprise tomorrow then it may rally.” A short position is a bet an asset will fall. The euro was little changed at $1.3928 at 9:10 a.m. London time, after rising to $1.3957 yesterday, the strongest since Sept. 8. The shared currency was at 105.99 yen from 106 yen yesterday. The greenback was unchanged at 76.10 yen. European leaders are seeking an agreement on bolstering the region’s rescue fund, recapitalizing banks and providing debt relief to Greece to avoid contagion spreading to Italy and Spain at the meeting in Brussels tomorrow. Italian and Spanish 10-year government bonds fell for a second day. Greek Losses Financial companies, represented by the Washington-based Institute of International Finance, proposed a loss of 40 percent on Greek debt, said a person briefed on the matter who declined to be identified because the talks are confidential. Luxembourg’s Jean-Claude Juncker, who leads the group of euro- area finance ministers, said yesterday talks on private-sector involvement in a second aid package for Greece are focusing on losses of 50 percent to 60 percent. There are limits “to what could be considered as voluntary to the investor base and to broader market participants,” Charles Dallara, managing director of the Institute of International Finance, an industry group that’s taking part in the Greek debt talk, said in an e-mailed statement yesterday. “Europe’s debt crisis will take five to 10 years to resolve, so even if something comes out of tomorrow’s summit, it doesn’t mean all the problems will disappear all at once,” said Daisuke Karakama, a market economist in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan’s third-biggest listed bank. “I’m bearish on the euro.” Kiwi Falls New Zealand’s dollar weakened against all 16 of its major counterparts. The kiwi declined 0.3 percent to 80.50 U.S. cents, snapping three days of gains. Consumer prices in the nation increased 0.4 percent in the third quarter from the previous three months, when they rose 1 percent, a report showed today. The data fueled speculation the central bank will signal a willingness to keep its benchmark interest rate at record low. “The kiwi is performing badly today because of the inflation data and the risk of a revision of the central bank’s rate path,” said Chris Walker, a currency strategist at UBS AG in London. The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against peers including the euro and yen, fell 0.1 percent to 76.064. Dudley said yesterday the Fed hasn’t “run out of bullets” and it has additional stimulus options, including extending its commitment to keep interest rates low and embarking on a third round of asset purchases. “Once concern over Europe’s debt crisis recedes, the market focus will probably shift to whether the Fed will embark on another round of quantitative easing,” said Kengo Suzuki, manager of the foreign-bond department in Tokyo at Mizuho Securities Co. “The bias is for the dollar to be sold.” The dollar has advanced 2.4 percent in the past six months, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro fell 2.7 percent over the same period and the yen gained 11 percent, the indexes show. To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net. To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.

Source