Bloomberg News

Euro Declines Amid Uncertainty About Greek Debt; Swissie Surges

June 01, 2011

June 1 (Bloomberg) -- The euro weakened against most of its major peers as uncertainty over aid to Greece reduced the appeal of assets denominated in the single European currency.

The euro fell from a three-week high against the dollar, erasing an earlier advance, after two people with knowledge of the talks said Greece’s next aid package may include incentives for bondholders to roll over maturing debt without triggering a default. The Dollar Index declined before reports that will probably show U.S. companies hired fewer workers and manufacturing cooled. The Swiss franc strengthened as data showed retail sales rose at the fastest rate for two years.

“Until there’s clarity on where the debate is going, you will get this volatility in the euro,” said Paul Robson, a senior foreign-exchange strategist at Royal Bank of Scotland Group Plc in London. “Clearly there’s still lots to discuss and it’s just taken the edge off the euro, which had rallied pretty hard over the last few days.”

The euro was little changed at $1.4404 as of 7:34 a.m. in New York, after advancing as much as 0.4 percent to $1.4448. It declined 0.2 percent to fetch 117.16 yen. The dollar slipped 0.2 percent against the Japanese currency to 81.38 yen.

IntercontinentalExchange Inc.’s Dollar Index, which measures the greenback against the currencies of six trading partners, was 0.1 percent lower at 74.54 after declining to 74.39, the least since May 6.

Greek Debt Incentives

European officials are trying to prevent the euro region’s first sovereign default as investors dump Greek bonds on concern the government won’t be able to meet its obligations.

Investors may be offered preferred status, higher coupon payments or collateral as inducements to buy bonds replacing Greek debt maturing between 2012 and 2014, said two people with knowledge of discussions, who declined to be identified because the talks are in progress.

So-called negative incentives are also under consideration, such as cutting off old Greek bonds from eligibility for use as collateral with the European Central Bank, the people said.

The dollar weakened before data forecast to show companies in the U.S. added 175,000 workers in May compared with 179,000 the prior month. That’s according to the median estimate of 37 economists in a Bloomberg survey before the private ADP Employers Services report. Labor Department data on June 3 will show a 180,000 gain in payrolls compared with April’s 244,000 increase, a separate survey shows.

Swiss Retail Sales

The Institute for Supply Management’s factory index, due today in the U.S., probably fell to 57.1 last month, the lowest since October, according to the median forecast. Readings above 50 signal expansion.

“If there’s any evidence of a considerable worsening in the employment situation, I think that would certainly hit confidence pretty significantly,” said Derek Halpenny, European head of currency research at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “There’s also downside risks for the ISM manufacturing today.”

The Swiss franc advanced against all 16 of its major counterparts as a report showed retail sales climbed 7.5 percent in April, boosting speculation the Swiss National Bank may raise borrowing costs. Separate data showed the SVME purchasing managers index rose to 59.2 in May from 58.4 in April, beating a median forecast of a decline to 57.5.

The franc gained 0.9 percent to 1.2179 per euro. It reached 1.2102 on May 27, the strongest on record, according to data compiled by Bloomberg. The Swiss currency appreciated 0.9 percent to 84.60 centimes per dollar.

The pound slid amid concern over the strength of the U.K.’s economic recovery after data showed manufacturing and mortgage approvals slumped.

The British currency slipped 0.2 percent to $1.6419, after earlier advancing as much as 0.3 percent. It depreciated 0.2 percent to 87.67 pence per euro.

--Editors: Matthew Brown, Mark McCord

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-0- Jun/01/2011 11:39 GMT

-0- Jun/01/2011 11:48 GMT

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net.

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.


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