Bloomberg News

Euro Falls Against Franc on Concern Greece Crisis Will Worsen

June 16, 2011

June 16 (Bloomberg) -- The euro fell to a record low against the Swiss franc amid concern Greece’s sovereign debt crisis is worsening and the government won’t agree on austerity measures.

Europe’s shared currency erased its loss against the dollar as most U.S. stocks gained and European Union Economic and Monetary Commissioner Olli Rehn said Greece will be able to get funding from the EU and International Monetary Fund in July as long as it enacts budget cuts. The yen strengthened against the dollar after a report showed an unexpected slowdown in Philadelphia area manufacturing.

“We’ve seen continued weakness here and abroad and continued pressure on Greece and neither of those things are good for risk,” said John McCarthy, director of currency trading at ING Groep NV in New York. “It’s another reason to sell euros.”

The euro weakened 1.2 percent to a record 1.19466 francs before trading at 1.20413 at 5 p.m. in New York. It traded at $1.4204 after reaching $1.4074, the weakest level since May 26. The shared currency slid 0.2 percent to 114.56 yen, after touching 113.50, the least since May 16.

The dollar declined 0.4 percent to 80.63 yen after falling as much as 0.6 percent.

Implied volatility for one-week euro-U.S. dollar options surged as much as 294 basis points to 16.81 percent, the highest level since November 2010. It rose 349 basis points yesterday, the most since May 2010. Implied volatility, which traders quote and use to set option prices, signals the expected pace of swings in the underlying currency.

Swiss Franc

The franc appreciated 0.6 percent against the dollar to 84.76 centimes and strengthened against all of its 16 most- traded counterparts. The central bank kept its main interest rate at 0.25 percent, an outcome predicted by all 26 economists in a Bloomberg survey.

The franc is the most overvalued it’s even been versus the euro, based on models, Thomas Stolper, chief currency strategist in London at Goldman Sachs Group Inc., said on a conference call.

Greek Prime Minister George Papandreou plans to reshuffle his cabinet and seek to win a confidence vote after attempts to garner opposition support for an austerity plan failed.

As riots broke out in Athens and the Greek government teetered, EU Commissioner Rehn said “close contact” with the IMF made him confident of an accord at a weekend crisis meeting to pay out 12 billion euros ($17 billion) in July as long as Greece enacts new budget cuts.

Aid Package

Greece’s immediate concern is to obtain 8.7 billion euros from Europe and 3.3 billion euros from the IMF in July, promised as part of last year’s precedent-setting aid package to stave off the euro area’s first default.

“Progress is being made in the discussions to ensure the full financing of the program, and we anticipate a positive outcome on this at the next Euro-group meeting,” Caroline Atkinson, a spokeswoman for the IMF, said in an e-mailed statement today.

“The slight improvement in risk was generated by a perception that Greece will be given some breathing room by the EU in which they will provide funding for upcoming July funding dates,” said Alan Ruskin, global head of Group-of-10 foreign- exchange strategy at Deutsche Bank AG in New York.

EU Meets

German Chancellor Angela Merkel and French President Nicolas Sarkozy will meet tomorrow in Berlin, with pressure increasing for the leaders to reach an accord on a rescue package for Greece. EU finance ministers agreed on June 14 to convene again on June 19 after they failed to reconcile a German-led push for bondholders to shoulder part of the cost of a new plan for Greek aid.

While the MSCI World Index of equities declined for a second day, losing as much as 1.3 percent, the Standard & Poor’s 500 Index rose 0.2 percent.

The Brazilian real fell even after the nation’s central bank said it will continue with its strategy of raising interest rates for a “sufficiently long” period, while saying the inflation outlook is showing “more favorable signs.”

Central bank President Alexandre Tombini has raised the selic rate by 1.5 percentage points in 2011, and traders are betting on a 0.50 percentage point of increases this year, according to Bloomberg estimates based on interest-rate futures.

New Zealand’s dollar, known as the kiwi, weakened against most of its 16 major counterparts monitored by Bloomberg after Finance Minister Bill English said the currency’s strength was hurting the economy.

New Zealand’s dollar declined 0.2 percent to 80.48 U.S. cents.

Economic Indicators

U.S. jobless claims declined by 16,000 to 414,000 in the week ended June 11, Labor Department figures showed. Economists surveyed by Bloomberg News projected 420,000 filings, according to the median forecast.

Housing starts in the U.S. increased more than forecast in May, led by a jump in the West as other parts of the country languished. Manufacturing in the Philadelphia region unexpectedly shrank in June for the first time in nine months.

“Initial jobless claims, as long as they’re above 400 it signifies that the labor market remains weak, so it’s not such a promising outlook,” said Mary Nicola, a currency strategist at BNP Paribas SA in New York. “It’s positive that we’ve seen an uptick in housing numbers, especially given the previous number. The housing market remains the Achilles heel of the U.S. economy.”

The Dollar Index, which measures the greenback against the currencies of its six major trade partners, fell 0.2 percent to 75.451. Yesterday, it had its biggest gain since August.

--With assistance from Allison Bennett in New York, Candice Zachariahs in Sydney and Ronnie Harui in Singapore. Editors: Paul Cox, Dave Liedtka

To contact the reporter on this story: A. Catarina Saraiva in New York at

To contact the editor responsible for this story: Dave Liedtka at

China's Killer Profits
blog comments powered by Disqus