Bloomberg News

Euro Falls to 4-Month Low as Turmoil Spurs Safety Demand

May 15, 2012

The euro traded at $1.2833 as of 8:39 a.m. in Tokyo. Photographer: Tomohiro Ohsumi/Bloomberg

The euro traded at $1.2833 as of 8:39 a.m. in Tokyo. Photographer: Tomohiro Ohsumi/Bloomberg

The euro fell to the lowest in almost four months versus the dollar as talks to form a Greek government failed, fueling concern the nation may leave the shared currency and boosting investor demand for safety.

The Dollar Index rose for a 12th day in the longest winning streak since its inception in 1973. Higher-yielding currencies, led by Sweden’s krona, reversed earlier gains, while the dollar advanced versus most major peers.

“The euro is coming under increased selling pressure as it looks cemented now that we’ll see another election in Greece,” said Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage. “The risk is the possibility of contagion to other key euro-zone states.”

The euro fell 0.7 percent to $1.2729 at 5 p.m. New York time. It touched $1.2722, the lowest level since Jan. 17. The shared currency slipped 0.3 percent to 102.07 yen after touching 102.05 yen, the weakest since Feb 16. The dollar appreciated 0.4 percent to 80.18 yen.

The Swedish krona slid for a 12th day against the dollar, the longest losing streak in Bloomberg records dating to 1971. The currency fell to 7.1855 to the greenback, the weakest since September 2010, before trading at 7.1742, down 1.7 percent.

Strongest Since 2008

Sterling reached the strongest level against the euro since November 2008 as investors sought an alternative to the 17- nation currency. The pound gained 0.2 percent, erasing earlier losses, to 79.53 pence per euro before trading at 79.59 pence.

The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trade partners, gained 0.8 percent to 81.251. It last declined on April 27.

Greek President Karolos Papoulias’ meeting in Athens today with political leaders failed to produce a government after an inconclusive May 6 vote. He called for a meeting tomorrow to form a caretaker government to lead the country until the vote.

A second election threatened to extend the country’s political gridlock and reignited speculation Greece will renege on its pledges to cut spending, required by the terms of its 240 billion euros ($306 billion) in bailouts. It added to bets Europe’s sovereign-debt crisis will worsen.

The Syriza party led by Alexis Tsipras, who favors defaulting and an end to economic austerity, would be the winner if fresh elections were held now, according to a poll sponsored by a Greek newspaper.

‘Nasty Outcome’

“If Tsipras wins and if he sticks to his platform, that would mean making the bailout commitments null and void,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “Everything’s falling into place to make for a nasty outcome in June or July.”

The euro gained earlier after the European Union’s statistics office in Luxembourg said gross domestic product in the region stagnated in the first quarter compared with the prior three months. The median forecast of economists surveyed by Bloomberg was for a 0.2 percent decline.

Germany’s 0.5 percent expansion at five times the pace economists had estimated helped offset weaker GDP in the euro area’s peripheral economies.

The euro dropped 4 percent in the past six months versus nine developed-nation counterparts tracked by Bloomberg Correlation-Weighted Indexes. Sweden’s krona slid 3.6 percent. The dollar rose 2.1 percent, and the yen lost 2.3 percent.

Canadian Dollar

Canada’s dollar rose against most of its major peers as a gauge of manufacturing in the New York region increased more than forecast. The U.S. is the nation’s biggest trading partner.

The Federal Reserve Bank of New York’s general economic index, known as the Empire State Index, increased to 17.1 this month from 6.6 in April, topping a Bloomberg News survey’s median estimate for a reading of 9. U.S. retail sales gained 0.1 percent in April, in line with economist estimates, a Commerce Department report showed.

“We had pretty favorable data in the U.S. today,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. “Empire manufacturing was much better than expected, so that supports the North American currencies, the peso and the Canadian dollar.”

Canada’s currency gained as much as 0.5 percent to 99.90 cents to the dollar before trading at C$1.0072, down 0.4 percent. It rose 0.4 percent to C$1.2822 per euro. The peso gained as much as 0.8 percent to 13.6237 per dollar before erasing gains to trade at 13.8363.

The Federal Reserve will release tomorrow the minutes of its April 25 meeting. Chairman Ben S. Bernanke said after the session he’s prepared to “do more” to boost the economic recovery and ensure that inflation remains close to target.

Aussie Dollar

Australia’s dollar rose from the lowest level since Dec. 20 against its U.S. counterpart, 99.22 cents. It advanced as much as 0.6 percent to $1.0015 before erasing its gain and trading at 99.37 U.S. cents, down 0.2 percent. The currency strengthened 0.2 percent to 79.67 yen.

The Aussie’s 14-day relative strength index against its U.S. counterpart dipped to 28 yesterday, below the 30 level that some traders see as signaling an asset may reverse direction. A similar gauge versus the yen fell to 26 yesterday.

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

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


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