BLBG:Euro Drops to 3-Month Low After Greek, French Elections
The euro fell to a three-month low after Socialist Francois Hollande was elected president of France and as Greek voters flocked to anti-bailout parties, stoking concern austerity efforts in Europe may be derailed.
The 17-nation currency slid for a sixth day, its longest series of losses since September 2011, after German Chancellor Angela Merkel’s party had its worst election result in more than half a century in the state of Schleswig-Holstein. The yen and the dollar rose versus most of their peers as Asian stocks extended a global rout, boosting demand for haven currencies.
“There are major concerns about the euro,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp. (8711), a currency margin company. “What’s common to both Greek and French voting is that people aren’t feeling good about austerity measures, which are the crux to a resolution of Europe’s debt problems.”
The euro declined to $1.2955, the weakest since Jan. 25, before trading at $1.2986 as of 6:45 a.m. in London, 0.8 percent below last week’s close in New York. It dropped 0.9 percent to 103.59 yen. The U.S. dollar was at 79.77 yen from 79.85.
The MSCI Asia-Pacific Index (MXAP) of shares slid 2.5 percent. The Standard & Poor’s 500 Index of U.S. stocks fell 1.6 percent on May 4 after government data showed American employers added fewer workers in April than economists had estimated.
Austerity and Recession
Austerity measures aimed at stemming Europe’s debt woes have driven economies from the Netherlands to Spain back into recession, emboldening politicians campaigning for growth. The elections took place as 386 billion euros ($501 billion) of emergency loans for Greece, Ireland and Portugal and a focus on deficit reduction failed to stem a sovereign-debt crisis.
The euro has declined 0.3 percent over the past month, according to Bloomberg Correlation-Weighted Indexes tracking 10 developed-nation currencies. The dollar has risen 0.7 percent and the yen has advanced 3.3 percent, the indexes show.
Hollande got about 52 percent of the vote in the French presidential election against about 48 percent for incumbent Nicolas Sarkozy, according to estimates by four pollsters.
“The Hollande victory was largely expected, but it does act as a trigger to increase demand for the dollar,” said Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in New York.
Berlin Invitation
Hollande’s platform calls for policies Merkel opposes, including increased spending and delayed deficit cuts. He used his campaign to call for an activist European Central Bank, defying Germany. Merkel telephoned Hollande to congratulate him and to invite him for talks in Berlin “as soon as possible,” according to a statement from her government.
Merkel’s Christian Democratic Union recorded its lowest share of the vote since 1950 in the northern state of Schleswig- Holstein. It placed first with 30.9 percent support, while coalition partner the Free Democratic Party slumped to 8.2 percent, according to ZDF television projections. That’s not enough for a rerun of their CDU-FDP coalition.
In Greece, New Democracy won 20 percent of the total vote with more than half of the ballots from yesterday’s elections counted, according to the Interior Ministry website. Socialist Pasok, which partnered with New Democracy in securing a second rescue package for the country, trailed in third place with 42 seats. Official projections predicted the two would fall one short of the 151 seats needed to win a majority.
Anti-Bailout Coalition
Syriza, a coalition of left parties which has vowed to cancel the bailout terms, has 49 seats as the second-biggest party. With the nation dependent on rescue funds to stay in the euro, the next government will need to find cuts worth 5.5 percent of gross domestic product in 2013 and 2014.
“Very few nations can stand austerity,” Khiem Do, Hong Kong-based head of Asian multi-asset strategy at Baring Asset Management Asia Ltd., which oversees about $10 billion, said in an interview with Bloomberg Television. “The euro has to fall a lot more in order to cushion the austerity programs.”
New Zealand’s dollar may decline further against the yen as its 200-day moving average is tested, Sharon Zollner, a senior economist at Australia & New Zealand Banking Group Ltd. (ANZ), and Alex Sinton, director for institutional foreign exchange, wrote in a research note today. The 200-day moving average was at 63.18 today.
The so-called kiwi retreated to 63.05 yen, the least since Feb. 1, before trading at 63.15 yen, 0.6 percent lower than last week’s close. The currency bought 79.18 U.S. cents from 79.55 on May 4.
To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
