The euro weakened for a third day against the dollar, touching the lowest in almost three weeks, as concern the currency region’s rescue plan will crumble and the European Central Bank will cut interest rates damped demand. The 17-nation currency fell the most in two weeks versus the yen after Greek Prime Minister George Papandreou pledged to put the European Union’s latest accord to a referendum, risking pushing the country into default if rejected by voters. The dollar and yen strengthened as stocks slid around the world and data showed Chinese manufacturing slowed. Australia’s dollar dropped after the nation’s central bank lowered interest rates. “There are continued political problems surrounding the implementation of the recent austerity measures in Greece,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp., the world’s largest custodial bank. “In this environment, there’s always going to be negative developments, and we’re focusing on them right now, which is benefiting the U.S. dollar.” The euro dropped 1.2 percent to $1.3687 at 12:26 p.m. in New York after falling to $1.3609, the weakest since Oct. 12. The shared currency depreciated 1.1 percent to 107.18 yen, after sliding as much as 1.7 percent, the biggest intraday drop since Oct. 17. The dollar rose 0.2 percent to 78.31 yen after touching 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 for a third day, rising 1.2 percent to 77.416. Volatility Jumps Implied volatility for the currencies of the Group of Seven nations surged as much as 9.2 percent to 13.5 percent today in its biggest increase since Aug. 8, according to a JPMorgan Chase & Co. index. Implied volatility, which traders quote and use to set option prices, signals the expected pace of swings. Higher-yielding assets slumped, driving the Standard & Poor’s 500 Index down 2.9 percent and the MSCI World Index of equities to weaken 3.6 percent. The Thomson Reuters/Jefferies CRB Index of raw materials dropped 2.2 percent. Mexico’s peso was the worst-performing currency among its major peers, weakening 2.3 percent to 13.6627 to the greenback. Norway’s krone fell 2.2 percent to 5.6761 per dollar, and South Africa’s rand lost 1.9 percent to 8.1106. 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. ‘Forced and Disorderly’ Greece’s referendum plan poses a threat to financial stability in the region, Fitch Ratings said in a statement. The vote “dramatically raises the stakes for Greece and the euro zone as a whole,” the ratings company said, adding that it increases the risk of a “forced and disorderly” default. The yield on Greek two-year government notes surged to a record 87 percent today. “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” and boosts the chance of a rate cut from the ECB. The central bank meets Nov. 3 to review borrowing costs. It will cut its benchmark rate by 36 basis points, or 0.36 percentage point, over the next 12 months, according to a Credit Suisse Group AG index based on swaps. Chinese Manufacturing The dollar advanced versus all of its 16 most-traded counterparts 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. The median estimate in a Bloomberg survey of economists was 51.8. The greenback appreciated 5.8 percent over the past six months, according to Bloomberg Correlation-Weighted Indexes, which track the currencies of 10 developed nations. The yen gained 8.3 percent and the euro weakened 2.7 percent. Australia’s currency slid against most of its major peers after the Reserve Bank of Australia lowered its cash rate target by 25 basis points to 4.5 percent. It was the first cut since April 2009. Sixteen of 27 economists surveyed by Bloomberg News predicted the move. The rest forecast no change. The Australian dollar slid 2.1 percent to $1.0305 and touched $1.0271, the lowest level since Oct. 21. It dropped 2 percent to 80.71 yen. Japan Action The yen maintained losses 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: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Garth Theunissen in London gtheunissen@bloomberg.net To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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