BLBG:Euro Falls Versus Dollar Before Summit; Yen Rises On BOJ
The euro fell to its weakest level against the dollar since August 2010 on speculation a summit of European Union leaders today will provide no new measures to stem the sovereign debt crisis.
The 17-nation currency dropped to a more than three-month low against the yen as European Central Bank council member Andres Lipstok said policy makers aren’t planning more stimulus at the moment. The yen climbed at least 0.7 percent versus all of its 16 major peers after the Bank of Japan (8301) left its asset- purchase fund unchanged. Australia’s dollar slid to the lowest level this year as demand for higher-yielding assets waned. The Dollar Index (DXY) advanced to a 20-month high.
“The euro will stay under pressure because there is a lot of uncertainty regarding the outcome of today’s meeting,” Lutz Karpowitz, a senior currency strategist at Commerzbank AG, said by phone from Frankfurt. “The market is in a risk-off mode. It is hard to see how the leaders can inject optimism.”
The euro fell 0.2 percent to $1.2660 at 7:16 a.m. New York time, after touching $1.2615, the least since Aug. 25, 2010. It was 0.9 percent weaker at 100.49 yen, after falling to 100.17, the least since Feb. 6. The yen appreciated 0.7 percent to 79.39 per dollar.
The Stoxx Europe 600 Index (SXXP) slid 1.6 percent and German bonds advanced, with five- and 30-year yields dropping to records.
Financial turmoil in the euro bloc will come up at tonight’s meeting in Brussels only “at the very end,” European Council President Herman Van Rompuy said in a pre-summit letter.
Dollar Index
The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, rose as much as 0.3 percent to 81.913, the highest level since Sept. 14, 2010.
The dollar has gained 4.2 percent over the past month as investors sought the safest assets amid a deepening financial crisis, Bloomberg Correlation-Weighted Indexes show. The yen, the best performer, added 6.7 percent, while the euro declined 0.2 percent, according to the indexes, which track 10 developed- nation currencies.
Today’s Brussels gathering takes place as Greece prepares to hold new elections on June 17 after an anti-bailout party surged to second place in balloting on May 6, boosting speculation that the country may exit the currency bloc.
Greece’s former Prime Minister Lucas Papademos told the Wall Street Journal yesterday there is a risk, however unlikely, that the nation will leave the euro.
Euro Support
“Now it’s not very necessary to present any new measures,” Lipstok, who heads Estonia’s central bank, said in an interview in Tallinn yesterday. Policy makers are watching developments closely and are open to taking additional action if needed, he said.
“It looks like there aren’t going to be any decisions coming from today’s EU summit,” said Geoff Kendrick, head of European currency strategy at Nomura International Plc in London. “That and the Papademos comments have pushed the euro lower. We think it will continue to grind lower.”
The euro’s decline today took it through the previous low for this year of $1.2624, reached on Jan. 13. The next support level for the euro is at $1.2580, Royal Bank of Canada strategist Elsa Lignos wrote in a note to investors, citing technical indicators. Support is a level where there may be an accumulation of orders to buy. Europe’s shared currency was last at $1.2580 in July 2010, data compiled by Bloomberg show.
The implied volatility of three-month options on Group of Seven nations’ currencies rose toward the most since January, according to a JPMorgan Chase & Co. index. The measure rose to 11.05 percent, approaching the 11.59 level reached on May 18, which was the most since Jan. 6.
Volatility
Greater volatility makes investments in currencies with higher benchmark lending rates less attractive because the risk in such trades is that market moves will erase profits.
The Australian dollar fell as low as 97.29 U.S. cents, the weakest level since Nov. 25, before trading 0.6 percent lower at 97.55 cents.
The yen snapped a two-day drop against the dollar, after slipping earlier this week on bets the central bank would decide to boost stimulus at its policy meeting.
The BOJ kept its asset-purchase fund at 40 trillion yen today, after expanding it by 10 trillion yen last month. The central bank also left a credit-lending program at 30 trillion yen, it said in a statement in Tokyo today. The policy board kept the key overnight lending rate between zero and 0.1 percent.
Half of the 14 economists in a Bloomberg survey anticipate the BOJ will add stimulus by July, when its price forecasts will indicate any progress in countering decade-long deflation.
Britain’s pound weakened against the dollar after a report showed U.K. retail sales fell the most in more than two years.
Sales including auto fuel declined 2.3 percent in April from the previous month, a report showed today. The median forecast of 24 economists in a Bloomberg survey was for a 0.8 percent decline.
The pound fell as much as 0.5 percent to $1.5680, the least since March 15.
To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
