The euro headed for its biggest weekly decline against the dollar in almost two months amid concern Greece is poised to default and the sovereign-debt crisis will cause growth in the region to contract. The Swiss franc weakened versus all its major counterparts after central bank Governing Board member Jean-Pierre Danthine said the currency remains “high” and policy makers are ready to weaken it further. The Dollar Index was poised for a weekly gain before the Labor Department releases unemployment data for October. The Australian dollar dropped after the central bank lowered forecasts for economic growth and inflation. “Really bad headlines out of Greece, to the point they may even consider leaving the euro-zone at some point, weigh on the currency,” said Chris Walker, a foreign-exchange strategist at UBS AG in London. “The euro’s trading on headlines out of Greece, and that’s masking fundamental divergences.” The euro was little changed at $1.3819 at 9:19 a.m. in London, having slumped 2.3 percent this week, the biggest decline since the period ended Sept. 9. The shared currency traded at 107.85 yen from 107.90 yesterday. The yen was unchanged at 78.06 per dollar. Greek Prime Minister George Papandreou is struggling to retain power after the largest opposition party rejected his offer to form a national government, raising the prospect of elections that may delay aid needed to prevent default. Papandreou Rebuffed Opposition leader Antonis Samaras rebuffed sharing power with Papandreou and called on the premier to step down. Papandreou scrapped a referendum on an accord with the European Union to avert a split in his party before a confidence vote scheduled for today. European services and manufacturing output contracted more than initially estimated in October, London-based Markit Economics said today. A euro-area composite index based on a survey of purchasing managers fell to 46.5 from 49.1 in September. That’s a 28-month low. “There are downside risks to euro,” said Joseph Capurso, a Sydney-based currency strategist at Commonwealth Bank of Australia, the nation’s biggest lender. “You will still get more softening of the data in Europe and it’s easy to come up with a scenario where you get some problem in Greece or in Italy and that drags down the euro.” European Central Bank President Mario Draghi yesterday unexpectedly reduced interest rates by a quarter percentage point to 1.25 percent, and said Europe is heading toward a “mild recession.” Franc Falls The franc snapped a two-day gain after Danthine said at an event in Geneva late yesterday that the currency remains strong even at a rate of 1.20 per euro. The Swiss National Bank on Sept. 6 imposed a cap of 1.20 francs per euro after the currency surged to a record, threatening exports and increasing deflation risks. “Danthine said the SNB is committed to its floor,” UBS’s Walker said. “They may raise the floor if conditions deteriorate or deflationary risks return. Over the longer term, they are committed to that policy, so there’s a bias to buy euro-Swiss on the back of that.” The franc dropped 0.8 percent to 1.2236 per euro. It climbed to a record 1.0075 on Aug. 9. The Dollar Index, which IntercontinentalExchange Inc. uses to track the U.S. currency against those of six trading partners, was little changed at 76.798, having risen 2.3 percent this week. U.S. payrolls expanded by 95,000 workers last month after a 103,000 increase in September, according to a separate Bloomberg survey before today’s report. The jobless rate held at 9.1 percent for a fourth month, the data is also forecast to show. Aussie Falls The so-called Aussie fell for the first time in three days after the Reserve Bank lowered its growth and inflation forecasts for the next two years as global financial turmoil makes businesses more reluctant to hire. The RBA said it saw growth of 4 percent in the 12 months to June 30, 2012, down from its Aug. 5 estimate of 4.5 percent. Consumer prices will rise 2 percent, from a previous prediction of 2.5 percent, and underlying inflation is predicted at 2.5 percent from a previous 3 percent, the central bank said. The revisions are “bearish, but the reaction is relatively muted given the market had already expected that would happen,” said Thomas Harr, head of Asian currency strategy at Standard Chartered Plc in Singapore. “The RBA has clearly shifted to an easing bias.” The Australian currency weakened 0.4 percent to $1.0377, and slid 0.2 percent to 80.99 yen. To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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