TK: Euro Weakens as Coalition Fails to Secure Greek Spending Cuts
The euro fell for the first time in four days versus the dollar as Greece’s coalition failed to reach a deal on 11.5 billion euros ($14.7 billion) of spending cuts, undermining optimism the debt crisis is being contained.
The shared currency slid versus most of its 16 major peers before a court in Germany rules on the nation’s participation in Europe’s permanent bailout fund in two days, when the Netherlands is due to hold elections. The Norwegian krone weakened after a report showed consumer prices fell in August. The implied volatility of three-month options for Group of Seven currencies fell to an almost five-year low.
“Traders are shaving their positions at the start of a week where we have quite a number of hurdles,” said Michael Derks, chief strategist at FxPro Group Ltd. in London. “There’s a lot for the market to absorb and traders, having seen the euro climb quite rapidly over the past few trading sessions, are just being a little careful.”
The 17-nation euro fell 0.2 percent to $1.2787 as of 6:54 a.m. New York time after rising 2 percent over the past three days. It was 0.1 percent weaker at 100.13 yen. The dollar was little changed at 78.30 yen.
Greek Prime Minister Antonis Samaras is due to meet officials from the euro area, the European Central Bank and International Monetary Fund today.
Austerity Measures
Greece’s Democratic Left leader Fotis Kouvelis, whose party is one of the three in the coalition government, said no decision had been made on spending cuts and that poorer citizens must be protected from austerity measures. The three leaders agreed to meet again on Sept. 12, two days before euro-area finance ministers gather in Cyprus for a briefing on Greek progress.
Germany’s Federal Constitutional Court is due to rule on the country’s participation in the European Stability Mechanism, a permanent 500 billion-euro fund that offers loans to member states and may buy their bonds to lower borrowing costs. Germany will be the biggest contributor to the fund with a 27 percent share, a statement from the European Commission shows.
The court’s decision will come the same day as Dutch voters decide whether to back parties questioning an expansion of European powers.
Krone, Franc
Even with these events, the euro may rise toward its 200- day moving average, currently at $1.2838, over the next week, FxPro’s Derks said. The shared currency has only traded above the key average on three days in the past year, according to data compiled by Bloomberg.
The euro has fallen 3.3 percent this year, the second-worst performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen has dropped 3.8 percent, while the dollar has declined 1.8 percent.
The Norwegian krone weakened against all of its 16 major peers tracked by Bloomberg after a report showed underlying consumer prices slid 0.7 percent in August.
The currency dropped 1 percent to 5.7778 per dollar and depreciated 0.8 percent to 7.3882 versus the euro.
The Swiss franc snapped a five-day decline against the euro, trading little changed at 1.20882, after tumbling to 1.21550 on Sept. 7, the weakest level since Jan. 9. Switzerland’s currency was 0.1 percent weaker at 94.54 centimes per dollar.
Fed Meeting
The Federal Reserve will start a two-day policy meeting on Sept. 12, amid speculation it will introduce a third round of asset purchases, known as quantitative easing.
“The market is right to anticipate that there will be another round of asset purchases” by the Fed, said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney, Australia’s second-biggest lender. “It’s looking increasingly likely and that’s a negative for the US dollar.”
The dollar may test its June low against the yen should it break its recent range of 78 to 79 yen, Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co., wrote in a research note.
The greenback has fallen below 78 only three times since June 1 when it touched 77.66, the weakest since Feb. 14, according to data compiled by Bloomberg. It slid to as low as 78.02 on Sept. 7.
Volatility Index
The implied volatility of three-month options for Group of Seven currencies fell to 7.88 percent, the lowest since Oct. 18, 2007 according to the JPMorgan G7 Volatility Index. A decrease makes investments in currencies with higher benchmark rates more attractive because it shows the risk is smaller that market moves will erase profits on such trades.
Even so, the UBS AG V24 Carry Index, which measures returns from borrowing in lower-rate currencies to buy higher-yielding ones for so-called carry trades, has fallen 2.8 percent from a four-month high on Aug. 9. Bloomberg Correlation-Weighted Indexes show that the worst-performing major currency in the past month was the Australian dollar, typically a beneficiary when investors are bullish on the economy because the nation has the highest interest rates among developed economies.
Australia’s dollar and the South African rand weakened as separate reports indicated the pace of global growth may be slowing. Japanese gross domestic product grew an annualized 0.7 percent in the three months through June, the Cabinet Office said in Tokyo today, less than a preliminary calculation of 1.4 percent. A government report also showed that China’s imports dropped 2.6 percent in August from a year earlier, marking the first decline since January.
The so-called Aussie lost 0.3 percent to $1.0352 and retreated 0.2 percent to 81.05 yen. China is Australia’s biggest export market. The rand fell 0.1 percent to 8.1766 per dollar.
