SF: Euro Weakens as Greece Balk on Spending Erodes Crisis Optimism
Sept. 10 (Bloomberg) -- The euro fell for the first time in four days versus the dollar as Greece’s coalition failed to reach a deal on 11.5 billion euros ($14.7 billion) of spending cuts, undermining optimism the debt crisis is being contained.
The 17-nation currency slid versus most of its 16 major peers before a court in Germany rules on the nation’s participation in Europe’s permanent bailout fund in two days, when the Netherlands is due to hold elections. The Norwegian krone weakened after a report showed consumer prices fell in August. The implied volatility of three-month options for Group of Seven currencies fell to an almost five-year low.
“We’ve got a little dip in growth momentum globally,” Dan Dorrow, head of research in Stamford, Connecticut, at Faros Trading LLC, said in a telephone interview. “Policy makers are catching up and getting less behind the curve. It’s natural in this kind of situation that there’s less risk of big downside.”
The euro fell 0.3 percent to $1.2777 as of 8:13 a.m. New York time after rising 2 percent over the past three days. It was 0.0 percent weaker at 99.98 yen. The dollar was little changed at 78.25 yen.
The euro may rise toward its 200-day moving average, currently at $1.2838, during the next week, according to Michael Derks, chief strategist at FxPro Group Ltd. in London. The shared currency has only traded above the key average on three days during the past year, according to data compiled by Bloomberg.
Annual Loss
The euro has fallen 3.3 percent this year, the second-worst performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen has dropped 3.8 percent, while the dollar has declined 1.8 percent.
The krone weakened against all of its 16 major peers tracked by Bloomberg after a report showed underlying consumer prices slid 0.7 percent in August.
The currency dropped 1.1 percent to 5.7848 per dollar and depreciated 0.8 percent to 7.3911 versus the euro.
The Swiss franc snapped a five-day decline against the euro, trading little changed at 1.20882, after tumbling to 1.21550 on Sept. 7, the weakest level since Jan. 9. Switzerland’s currency was 0.1 percent weaker at 94.54 centimes per dollar.
Implied volatility of three-month options for Group of Seven currencies fell to 7.89 percent, the lowest since Oct. 18, 2007 according to the JPMorgan G7 Volatility Index. A decrease makes investments in currencies with higher benchmark rates more attractive because it shows the risk is smaller that market moves will erase profits on such trades.
Position Shifts
“Traders are shaving their positions at the start of a week where we have quite a number of hurdles,” FxPro’s Derks said. “There’s a lot for the market to absorb and traders, having seen the euro climb quite rapidly over the past few trading sessions, are just being a little careful.”
Even so, the UBS AG V24 Carry Index, which measures returns from borrowing in lower-rate currencies to buy higher-yielding ones for so-called carry trades, has fallen 2.8 percent from a four-month high on Aug. 9. Bloomberg Correlation-Weighted Indexes show that the worst-performing major currency in the past month was the Australian dollar, typically a beneficiary when investors are bullish on the economy because the nation has the highest interest rates among developed economies.
Slowing Growth
Australia’s dollar and the South African rand weakened as separate reports indicated the pace of global growth may be slowing.
Japanese gross domestic product grew an annualized 0.7 percent in the three months through June, the Cabinet Office said in Tokyo today, less than a preliminary calculation of 1.4 percent. A government report also showed that China’s imports dropped 2.6 percent in August from a year earlier, marking the first decline since January.
The so-called Aussie lost 0.4 percent to $1.0347 and retreated 0.4 percent to 80.96 yen. China is Australia’s biggest export market. The rand fell 0.1 percent to 8.1875 per dollar.
Greek Prime Minister Antonis Samaras is due to meet officials from the euro area, the European Central Bank and International Monetary Fund today.
Greece’s Democratic Left leader Fotis Kouvelis, whose party is one of the three in the coalition government, said no decision had been made on spending cuts and that poorer citizens must be protected from austerity measures. The three leaders agreed to meet again on Sept. 12, two days before euro-area finance ministers gather in Cyprus for a briefing on Greek progress.
German Ruling
Germany’s Federal Constitutional Court is due to rule Sept. 12 on the country’s participation in the European Stability Mechanism, a permanent 500 billion-euro fund that offers loans to member states and may buy their bonds to lower borrowing costs. Germany will be the biggest contributor to the fund with a 27 percent share, a statement from the European Commission shows.
The court’s decision will come the same day as Dutch voters decide whether to back parties questioning an expansion of European powers.
The Federal Reserve will start a two-day policy meeting on Sept. 12, amid speculation it will introduce a third round of asset purchases, known as quantitative easing.
“The market is right to anticipate that there will be another round of asset purchases” by the Fed, said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney, Australia’s second-biggest lender. “It’s looking increasingly likely and that’s a negative for the U.S. dollar.”
--With assistance from Hiroko Komiya in Tokyo and Kristine Aquino and Masaki Kondo in Singapore. Editors: Paul Cox
To contact the reporters on this story: Joseph Ciolli in New York at jciolli@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net
To contact the editor responsible for this story: David Liedtka at dliedtka@bloomberg.net
