The euro fell to a three-week low against the dollar and slid versus the yen on concern a Greek government reshuffling will lead to a renegotiation of aid terms, worsening the region’s debt crisis. Europe’s shared currency pared its drop on speculation Greece may be allowed time by the European Union to form a unity government that will approve an austerity package. The yen pared gains against the dollar after reports showed U.S. initial claims for unemployment fell more than forecast and housing starts increased in May. “The slight improvement in risk was generated by a perception that Greece will be given some breathing room by the EU,” said Alan Ruskin, global head of Group-of-10 foreign- exchange strategy at Deutsche Bank AG in New York. “There’s a sense that Greece is being given breathing room to go through the political machinations to form a government that can ultimately support austerity.” The euro fell 0.3 percent to $1.4142 at 9:45 a.m. in New York and reached $1.4074, the weakest level since May 26. The shared currency slid 0.4 percent to 114.31 yen, after touching 113.50, the least since May 16. The euro weakened 1.2 percent to a record 1.19466 Swiss francs before trading at 1.19781. The dollar declined 0.2 percent to 80.81 yen after falling as much as 0.6 percent. Option View Implied volatility for one-week euro-U.S. dollar options surged as much as 294 basis points to 16.81 percent, the highest level since November 2010. It rose 349 basis points yesterday, the most since May 2010. Implied volatility, which traders quote and use to set option prices, signals the expected pace of swings in the underlying currency. Greek Prime Minister George Papandreou will reshuffle his cabinet and seek to win a confidence vote today after attempts to garner opposition support for an austerity plan failed. Police fired tear gas as thousands of demonstrators encircled the Parliament House in Athens yesterday to protest wage cuts and tax increases. “Although most investors remain of the opinion that we’re still going to achieve some kind of near-term solution for Greece, it’s not 100 percent clear how that deal is going to get done,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York. “That’s why we’ve seen the trouble in the euro and equity markets.” EU Meets German Chancellor Angela Merkel and French President Nicolas Sarkozy will meet tomorrow in Berlin, with pressure increasing for the leaders to reach an accord on a rescue package for Greece. European Union finance ministers agreed on June 14 to convene again on June 19 after they failed to reconcile a German-led push for bondholders to shoulder part of the cost of a new plan for Greek aid. Dutch newspaper Het Financieele Dagblad cited European Central Bank Governing Council member Nout Wellink as saying the emergency fund for euro-area countries needs to be doubled if private investors are pressured to contribute to additional aid for Greece. “If risk aversion continues to pervade markets and we have these ongoing concerns about the situation in Europe, that will continue to see the euro trade heavily,” said Mike Burrowes, a currency strategist at Bank of New Zealand Ltd. in Wellington. “The dollar, the Swiss franc and the yen would be expected to appreciate in that sort of environment.” The MSCI World Index of equities declined for a second day, losing as much as 1.3 percent. Aussie, Kiwi The Australian and New Zealand dollars dropped as stocks fell, sapping demand for higher-yielding assets. New Zealand’s dollar, known as the kiwi, weakened against all 16 major counterparts monitored by Bloomberg after Finance Minister Bill English said the currency’s strength was hurting the economy. Australia’s currency fell 0.4 percent to $1.0540, and New Zealand’s dollar declined 0.6 percent to 80.22 U.S. cents. The Swiss franc appreciated 0.4 percent against the dollar to 84.93 centimes. The central bank kept its main interest rate at 0.25 percent, an outcome predicted by all 26 economists in a Bloomberg survey. U.S. jobless claims declined by 16,000 to 414,000 in the week ended June 11, Labor Department figures showed today in Washington. Economists surveyed by Bloomberg News projected 420,000 filings, according to the median forecast. The number of people on unemployment benefit rolls and those receiving extended payments decreased. Housing Starts Work began on 560,000 houses at an annual pace, up 3.5 percent from the prior month and exceeding the 545,000 median forecast of economists surveyed by Bloomberg News, figures from the Commerce Department showed today in Washington. Building permits, a sign of future construction, also increased. “Initial jobless claims, as long as they’re above 400 it signifies that the labor market remains weak, so it’s not such a promising outlook,” said Mary Nicola, a currency strategist at BNP Paribas SA in New York. “It’s positive that we’ve seen an uptick in housing numbers, especially given the previous number. The housing market remains the Achilles heel of the U.S. economy.” The Dollar Index, which measures the greenback against the currencies of its six major trade partners, rose 0.1 percent to 75.691 and touching the highest since May 25. Yesterday, it had its biggest gain since August. To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Garth Theunissen in London at gtheunissen@bloomberg.net To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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