BLBG:Euro Drops to 3-Month Low After Greek, French Elections
The euro weakened to a more than three-month low after 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 declines since September, dropping as much as 1 percent before paring losses. Hollande, who becomes the first Socialist in 17 years to control Europe’s second-biggest economy, pledged to push for less austerity and more growth in the region. The yen and the dollar strengthened versus most of their peers.
“The elections have created a lot of political uncertainty,” said Lutz Karpowitz, a senior currency strategist at Commerzbank AG in Frankfurt. “There’s a clear risk that if we get a lot of stimulus measures that have to be paid for then euro-dollar will go lower.”
The euro declined to $1.2955, the weakest since Jan. 25, before trading 0.4 percent lower at $1.3036 at 6:50 a.m. New York time. It dropped 0.4 percent to 104.08 yen. The U.S. dollar was little changed at 79.84 yen.
The Australian dollar fell as much as 0.7 percent to $1.0110, the lowest since Dec. 29, and was little changed at $1.0192. New Zealand’s dollar declined as much as 0.6 percent to 79.07 U.S. cents, the least since Jan. 13, before trading at 79.57 cents.
The German 10-year bund yield fell to a record 1.552 percent, before rebounding to 1.58 percent, with the similar- maturity Treasury yield down two basis points at 1.86 percent.
Austerity and Recession
German Chancellor Angela Merkel’s party had its worst election result in more than half a century in the state of Schleswig-Holstein. Voters in Greece and France challenged austerity as Europe’s sole prescription for the financial crisis, adding pressure on Merkel to broaden her focus from debt reduction to save the 17-nation bloc.
Measures aimed at stemming Europe’s sovereign-debt crisis have driven economies from the Netherlands to Spain back into recession, emboldening politicians campaigning for growth. European investor confidence slid to its lowest level in almost three years in May, the Sentix research institute said today.
“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.”
Berlin Invitation
An index measuring sentiment in the euro-area economy declined to minus 24.5 from minus 14.7 in April, Sentix data showed today. Spanish industrial production declined 7.5 percent in March from a year earlier, the most in more than two years, a separate report showed.
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 0.3 percent and the yen has advanced 2.9 percent, the indexes show.
Europe’s shared currency earlier dropped below $1.30 for the first time since April 16. It will next find support at $1.2950 and at $1.28709, Ralf Umlauf, head of floor research at Helaba Landesbank Hessen-Thueringen in Frankfurt, wrote in a note to investors. Support refers to an area on a chart where buy orders may be clustered.
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.
CDU Disappointment
“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.
Merkel’s Christian Democratic Union 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.
Greek elections left the two biggest parties short of the clear majority to keep bailout efforts on track. 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.”
To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net.
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.
