Bloomberg News

Euro Weakens Against Most Peers as Greece Passes Austerity Plan

June 29, 2011

June 29 (Bloomberg) -- The euro fell against the majority of its most-traded counterparts as the passage of austerity measures by Greek lawmakers failed to fully quell concern the nation’s debt crisis will worsen.

The 17-nation currency gained earlier against the dollar after Greek Prime Minister George Papandreou garnered enough votes for his 78 billion euro ($112 billion) package of budget cuts and state asset sales needed to tap a fifth portion of last year’s rescue. Canada’s dollar rallied as consumer prices increased more than forecast and Switzerland’s franc sank as stocks and commodities rose.

“It doesn’t change the view that Greece faces an unsustainable debt problem and the measures put in place are insufficient in correcting that issue,” said Aroop Chatterjee, a currency strategist at Barclays Plc in New York. “Investors who are looking at medium-term implications would not be compelled to buy the euro at these levels. Shorter term investors who are looking at momentum strategies may find it attractive to buy the euro heading in to an event such as this.”

The euro rose 0.3 percent to $1.4418 as of 11:09 a.m. in New York, after gaining as much as 0.5 percent to the strongest since June 15. The shared currency was little changed at 116.61 yen. The dollar fell 0.4 percent to 80.83 yen.

Commodity Trend

Currencies of commodity-exporting countries rose the most against the dollar among the major currencies as raw materials prices advanced. The Thomson Reuters/Jefferies CRB Index of commodities added 1 percent.

“There’s definitely a strong focus on commodity prices today, which is helping the Aussie, kiwi and Canada outperform,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “Risk appetite has stabilized and commodities are firmer.”

Canada’s dollar rose 1.2 percent to 96.94 cents per U.S. dollar. New Zealand’s currency appreciated 1.1 percent to 82.10 cents and the Aussie added 1.1 percent to $1.0659.

The loonie, as the Canadian currency is also known for the image of the aquatic bird on the C$1 coin, also rose as consumer prices in Canada advanced 0.7 percent in May after a 0.3 percent gain in the previous month, Statistics Canada said today in Ottawa, making it more likely that the central bank will resume boosting borrowing costs.

Bank of Canada

The Bank of Canada kept its benchmark overnight lending rate at 1 percent on May 31, where it has been since September. Investors expect the central bank to increase interest rates by 47 basis points in the next 12 months, from 35 basis points yesterday, according to a Credit Suisse Group AG index based on swaps.

IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, dropped 0.4 percent to 74.735 as the Standard & Poor’s 500 Index advanced 0.8 percent. The S&P’s GSCI index of raw materials climbed 2.2 percent.

Papandreou won approval of his package of budget cuts and asset sales, which is crucial to receiving further international financial aid.

A total of 155 lawmakers in the 300-strong chamber supported the law and 138 voted against, Parliament Speaker Filippos Petsalnikos said in remarks carried live on state-run Vouli TV today. Parliament will tomorrow hold a vote on implementing the austerity plan.

The vote came amid a 48-hour strike and scuffles outside parliament that saw police fire tear gas at demonstrators protesting budget cuts and asset sales.

More Votes

“We do have another vote tomorrow and the continued rioting on the streets, which is unlikely to subside ahead of this next vote,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp. “The market is taking profit after bidding up the euro, so we should see the euro grind lower against the dollar.”

The euro has gained 2.6 percent this year against a basket of nine developed-market peers, according to Bloomberg Correlation-Weighted Currency Indexes. The yen has weakened 4.8 percent, while the dollar is down 5.4 percent.

The franc slipped versus all of its major peers after the nation’s economic barometer fell in June, adding to signs the franc’s ascent and a faltering euro-region economy may hurt economic growth.

The monthly gauge that aims to predict the economy’s direction about six months ahead dropped to 2.23 from 2.30 in May, the KOF Swiss Economic Institute in Zurich said today.

The Swiss currency slid 0.7 percent to 1.2038 per euro. The franc fell 0.4 percent to 83.55 centimes per dollar. It reached 82.76 centimes per dollar yesterday, a record high.

--With assistance from Maria Petrakis and Natalie Weeks in Athens, Catarina Saraiva in New York and Chris Fournier in Halifax. Editors: Paul Cox, Greg Storey

To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net;

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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