The euro fluctuated versus the dollar after Greek Prime Minister George Papandreou signaled he won’t call a referendum on a rescue plan for his nation and the European Central Bank unexpectedly cut its key interest rate. The 17-nation currency erased losses as Papandreou said Greece belongs in the currency bloc. His referendum call had raised concern voters would reject the bailout, and European leaders framed it as a poll on Greece’s euro membership. The currency had approached a three-week low versus the greenback after ECB President Mario Draghi cut the key rate to 1.25 percent and said Europe is heading toward a “mild recession.” “This is clearly an environment where people can’t take meaningful positions for more than five minutes because you don’t know when you’re going to get sideswiped by the next headline,” said Alan Ruskin, global head of Group-of-10 foreign-exchange strategy at Deutsche Bank AG in New York. The euro was little changed at $1.3759 at 12:32 p.m. in New York, after rising as much as 0.6 percent and falling as much as 0.7 percent. It dropped to $1.3609 on Nov. 1, the weakest since Oct. 12. The shared currency traded at 107.28 yen. It dropped as much as 0.7 percent to 106.58 yen after the ECB announcement. The Japanese currency was little changed at 77.98 per dollar The implied volatility for one-week euro-dollar options, which indicates expected swings in the underlying currencies, rose to as much as 19.21 percent, the highest since Sept. 26. ‘Uncertain Environment’ “It’s a very uncertain environment, and there’s a chance for a lot of volatility in foreign-exchange rates,” Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London, said in an interview on Bloomberg Television’s “In Business” with Margaret Brennan. South Africa’s rand was the biggest winner against the U.S. dollar as stocks rose on the interest-rate cut and prospects that Greece will accept the bailout. The currency strengthened 1.6 percent to 7.8632 to the greenback. The Standard & Poor’s 500 Index advanced 1.1 percent. Papandreou reached out to his political opposition about forming a transitional Greek government. Papandreou commented to his ministers in Athens today, according to an e-mailed transcript of his statements. The prime minister earlier defied calls to step down after his surprise decision to call the referendum divided his party and Europe. Aid Cutoff Led by Germany and France, European leaders yesterday cut off financial aid for Greece until the planned vote took place in December. “The referendum will revolve around nothing less than the question: does Greece want to stay in the euro, yes or no?” German Chancellor Angela Merkel told reporters after crisis talks before today’s Group of 20 summit in Cannes, France. French President Nicolas Sarkozy said Papandreou’s government wouldn’t get a “single cent” of assistance if voters rejected the bailout plan. Greek Finance Minister Evangelos Venizelos said the bailout should be implemented without delay and his nation’s membership in the euro region cannot depend on a referendum. More than seven in 10 voters said they favored Greece remaining in the euro system, according to a poll last week of 1,009 people published in To Vima newspaper. ECB policy makers unanimously lowered the benchmark interest rate by a quarter-percentage point to 1.25 percent, confounding 51 of 55 economists in a Bloomberg News survey. ‘Ongoing Tensions’ “The ongoing tensions in financial markets are likely to dampen the pace of economic growth in the euro area in the second half and beyond,” Draghi said at a press conference in Frankfurt following the decision, his first as president of the central bank. The euro slumped after the cut, which followed two quarter- percentage point increases earlier this year as former ECB President Jean-Claude Trichet attempted to quell rising inflation. “When we heard the news about the rate cut, a lot of people looked at that as the real indication that Draghi was not Trichet, that he was willing to be more proactive,” said Andrew Cox, a currency strategist at Citigroup Inc. in New York. “After sitting through the press conference, you came away with a sense that it was much more reactive to a slowdown in the economic activity, and not some real profound shift.” Draghi signaled officials have no plans to help bail out cash-strapped nations facing an escalating debt crisis that threatens to splinter the euro region. He stuck to the line adopted by Trichet. The bond purchase program is “temporary, it’s limited in the amount and it’s justified on the basis of restoring the functioning of monetary policy transmission channels,” the new ECB chief said. To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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