BLBG:Euro Near Three-Month Low on Greek Leadership Concern
The euro weakened for a seventh day against the dollar as Greek politicians struggled to form a new government after elections over the weekend raised the prospect of the country withdrawing from the currency bloc.
The 17-nation euro extended its longest run of declines against the greenback since September 2008 as German Chancellor Angela Merkel rejected government stimulus as the way to spur economic growth, setting up a clash with French president-elect Francois Hollande. The pound dropped against the dollar as a report showed U.K. house prices fell in April. Australia’s dollar declined after the trade deficit widened.
“This stalemate in Greece in terms of the elections not leading to a successful formation of a new government is clearly a concern, especially against some of the euro rhetoric of the smaller parties,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “We’re clearly in a risk-off environment right now.”
The euro declined 0.4 percent to $1.3005 at 5 p.m. in New York after sliding to $1.2955 yesterday, the weakest level since Jan. 25. The shared currency dropped 0.4 percent to 103.88 yen. It slipped to 103.24 yesterday, the lowest since Feb. 16. The yen gained 0.1 percent to 79.87 per dollar.
Mexico’s peso and South Africa’s rand led declines among the 16 major currencies tracked by Bloomberg. The peso fell 1.6 percent against the greenback to 13.3673. The rand dropped 1.2 percent to 7.8924 per dollar after touching 7.9384, the weakest level since April 17.
The Standard & Poor’s 500 Index (SPX) lost 0.4 percent and crude oil for June delivery weakened for a fifth day, falling 0.5 percent to $97.42 a barrel. Greece’s ASE Index (ASE) dropped 3.6 percent to 620.54, its lowest level since November 1992.
Greek Turmoil
Alexis Tsipras, whose Syriza party placed second in Greek elections on May 6, said he would forge ahead with plans to form a coalition government of left-wing parties after he was handed the mandate by President Karolos Papoulias.
Tsipras said he wouldn’t agree to join forces with New Democracy and Pasok, the two Greek parties that have supported austerity measures in return for international funds. He called on the leaders of both parties to withdraw their pledges to impose the terms in writing by tomorrow when he is to meet with both of them to discuss forming a government.
A left coalition government would nationalize banks to spur growth, repeal recent labor reforms and immediately cancel the bailout accords, he said.
‘A Little Skittish’
“When you have the guy who’s supposed to form the coalition saying that there’s a moratorium on debt limits, that the bailout is not necessarily in place -- stuff like that is getting people a little skittish,” said Brian Kim, a currency strategist in Stamford, Connecticut, at Royal Bank of Scotland Group Plc. “There’s a shadow that’s being cast and there seems to be an overall more mixed and more downbeat tone to the market.”
Hollande’s platform calls for policies Germany’s Merkel opposes, including increased spending and delayed deficit cuts. Merkel invited Hollande to Berlin for talks “as soon as possible,” a statement from her government said on May 6.
“This discussion is not whether we should pursue consolidation or growth, it’s completely clear that we need both,” Merkel told reporters in Berlin yesterday.
Greece could exit the euro bloc as soon as next month, according to John Taylor, founder and chief executive officer of hedge fund FX Concepts LLC in New York.
‘Out of Money’
“This summer I think is very likely,” Taylor said in an interview with Erik Schatzker and Sara Eisen on Bloomberg Television’s “InsideTrack” show. “The Europeans aren’t going to give them the money, the International Monetary Fund isn’t going to give them an OK. They’ll be out of money in June.”
The euro has weakened 3.5 percent over the past six months, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar rose 0.9 percent, and the yen dropped 2 percent.
IntercontinentalExchange Inc.’s Dollar Index (DXY), which measures the greenback against the currencies of six major U.S. trade partners, rose for a seventh day, its longest such streak since June 2010. It advanced 0.3 percent to 79.836.
The pound declined from within two U.S. cents of an eight- month high against the dollar after an industry report showed a gauge of house prices declined.
The Royal Institution of Chartered Surveyors said its index dropped to minus 19 from minus 11 in March. A reading below zero means more surveyors saw price declines than increases.
Australian Dollar
The pound dropped 0.2 percent to $1.6158 after rising to $1.6302 on April 30, the highest level since Aug. 31. Sterling rose 0.2 percent to 80.49 pence per euro.
Australia’s dollar declined for the sixth time in seven days after the nation reported a larger-than-estimated trade deficit in March amid concern spending cuts by the government will damp economic growth.
The Aussie also depreciated as the government announced its first reduction in spending in at least 42 years as Prime Minister Julia Gillard plans to return the budget to a surplus and give the central bank scope to cut interest rates.
“Factors that supported the Australian dollar are peeling away,” said Yoshisada Ishide, who manages the world’s biggest mutual fund focusing on Australian dollar-denominated bonds at Daiwa SB Investments Ltd. in Tokyo. “Markets understand that Australia’s government can’t take stimulus measures and that it has to rely on monetary policy” to support growth.
The Australian dollar declined 0.8 percent to $1.0121 after dropping to $1.0089, the lowest since Dec. 29.
Technical Analysis
The U.S. dollar is set to rebound against its Canadian counterpart and appreciate to levels last seen in October, according to Bank of America Corp.
The currency pair has been trading in a range since the third quarter of last year and has carved out a base in the past several months, said MacNeil Curry, head of foreign-exchange and interest-rates technical strategy at Bank of America in New York.
“We’re going to see a push to the high end of this seven- month range -- the trend is turning,” Curry said in a telephone interview.
The greenback rose 0.6 percent to 99.87 cents after touching C$1.0023, the highest level since April 16. A close above C$1.0053 would trigger further rallies to C$1.0568, last reached in October, and even C$1.0681, a level not seen since 2010, Curry said.
To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
