The euro fell for a third day against the dollar on speculation an economic slowdown in the region will prompt the European Central Bank to consider cutting interest rates amid renewed concern Greece will default. The 17-nation currency weakened versus the yen after Greek Prime Minister George Papandreou pledged to put the European Union’s latest accord on the nation’s finances to a referendum. The dollar and yen strengthened as stocks declined around the world and a Chinese report showed manufacturing slowed and export orders contracted. The Australian dollar declined after the central bank cut interest rates. “European fears and risk aversion are trumping everything and gives euro bears the confidence to have another go at the shared currency,” said Kit Juckes, head of foreign-exchange research at Societe Generale SA in London. “What the Greeks are considering doing would result in about as disorderly a default as you can get. That threatens to return Europe to the maelstrom, it increases downside risks to the economy and boosts the chances of a more dovish stance from the ECB.” The euro dropped 1.1 percent to $1.3702 at 8:43 a.m. in London after falling to $1.3675, the weakest since Oct. 20. The currency tumbled 2 percent yesterday. The euro fell 1.2 percent to 107.03 yen. The dollar was little changed at 78.11 yen after rising to 79.53 yesterday, the strongest since Aug. 4. The Dollar Index, which IntercontinentalExchange Inc. uses to track the U.S. currency against those of six trading partners, gained 0.9 percent to 77.210. Greece Referendum Papandreou’s call for a referendum and a parliamentary confidence vote raised the prospect of derailing the European bailout effort and pushing Greece into default. An opinion poll published Oct. 29 showed most Greeks believe the accord on a new bailout package and a debt writedown is negative. Group of 20 leaders gather for a Nov. 3-4 summit in Cannes, France, to discuss the debt crisis. The Stoxx Europe 600 Index of shares slid 2.7 percent and Standard & Poor’s 500 Index futures dropped 1.7 percent. “It certainly is a worry just how weak the European economy is,” said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia, the nation’s biggest lender. A European interest-rate cut “may happen next year. In the short term, you could certainly see euro falling further towards the $1.35 region.” The dollar and yen gained after the China Federation of Logistics and Purchasing said its Purchasing Managers’ Index fell to 50.4 in October, from 51.2 the previous month. That compared with the median estimate of 51.8 in a Bloomberg survey of economists. Dollar Gains The dollar has appreciated 5.5 percent in the past six months according to Bloomberg Correlation-Weighted Indexes, which track the currencies of 10 developed nations. The yen has gained 8.2 percent and the euro has fallen 2.9 percent. “Risk aversion will prevail over the next few months and that should benefit the U.S. dollar,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp., Australia’s second-largest lender. “If investors want to now buy a major currency during a risk averse period, there’s only one left and that’s the U.S. dollar.” The Australian dollar slid against all 16 of its major counterparts after the Reserve Bank of Australia lowered its cash rate target by 25 basis points to 4.5 percent. That’s the first cut since April 2009. Sixteen of 27 economists surveyed by Bloomberg News predicted the move; the rest forecast no change. “The Aussie is lower after the RBA rate cut,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “It seems like they have opened the door for more rate cuts because they say that inflation is likely to be close to target. I think there’s a possibility there may be another cut in December.” The so-called Aussie slid 1.8 percent to $1.0346, and dropped 1.9 percent to 80.79 yen. Yen Sales The yen maintained its decline from yesterday against the dollar, which occurred after Japan sold its currency to weaken it and protect exporters. Finance Minister Jun Azumi said in Tokyo today the government will continue to take appropriate action on the currency. Credit Suisse Group AG analysts estimated the value of yesterday’s market operations may have exceeded $50 billion. The intervention was the first since August, when Japan spent 4.51 trillion yen seeking to stem the currency’s surge to a postwar high against the dollar. To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Garth Theunissen in London gtheunissen@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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