The euro fluctuated against the dollar amid speculation its recent decline may have been overdone and as Greek leaders prepare to hold new elections.
The 17-nation currency earlier reached a four-month low against the greenback amid mounting concern Greece will exit the currency bloc. The pound fell the most in a month against the dollar as the Bank of England said U.K. growth will stay “subdued” in the near term. The yen slid against most of its major counterparts after the Bank of Japan (8301) failed to find enough government securities to buy as part of its stimulus program.
“The market is correcting a little bit after that strong deterioration in risk that we’ve seen,” said Eric Viloria, senior currency strategist at Gain Capital Group LLC in New York. “We’re hearing the same comments from European officials, Greek officials, and it looks like we have to wait and see until we’re near the June elections.”
The euro rose 0.1 percent to $1.2740 at 10:51 a.m. in New York after touching $1.2681, the weakest level since Jan. 17. It advanced 0.3 percent to 102.39 yen. The dollar strengthened 0.2 percent to 80.37 yen.
The relative strength index of the euro against the dollar fell to 24.3 today, below the 30 level that some traders see as a signal an asset may be oversold and poised for a reversal.
The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to gauge the greenback against the currencies of six U.S. trading partners, rose 0.1 percent to 81.276. It is the 13th consecutive gain for the index in the longest string of increases since its inception in 1973.
The implied volatility of three-month options on Group of Seven nations’ currencies rose to as high as 10.94 percent, the highest since Jan. 9, according to a JPMorgan Chase & Co. index. The measure has averaged 11.6 percent over the past year. Greater volatility makes investments in currencies with higher benchmark lending rates less attractive because the risk in such trades is that market moves will erase profits.
Greece’s Democratic Left leader Fotis Kouvelis said a new caretaker government decided by party leaders today would have one task, that of holding elections. He said elections would most likely be held on June 17. President Karolos Papoulias failed to broker a governing coalition in meetings yesterday.
The deadlock in Greece has sparked uncertainty over the country’s pledged spending cuts required by the terms of its two bailouts worth 240 billion euros ($306 billion) negotiated since May 2010.
‘A Greek Exit’
“As the week progresses, the risk that there is a Greek exit, along with all the baggage that goes along with it, continues to be very real,” said Carl Forcheski, a director on the corporate currency sales desk at Societe Generale SA in New York.
The euro has lost 1.1 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar rose 0.8 percent over the period.
The yen reached an almost two-week low against the dollar as the central bank’s shortfall increased concern the BOJ may have to broaden its asset-purchase program to encompass longer- dated debt or other types of assets.
Financial institutions agreed to sell 480.5 billion yen ($6 billion) of one- to two-year debt, less than the BOJ’s planned 600 billion yen of purchases, the central bank said on its website. It was the first shortfall since the BOJ set up the program to spur growth in October 2010.
The dollar strengthened against the yen before the Fed releases minutes of its April 24-25 meeting.
Chairman Ben S. Bernanke said after that gathering he’s prepared to “do more” to boost the recovery and ensure inflation remains close to target. Officials have said borrowing costs are likely to remain “exceptionally low” at least through late 2014.
The Fed bought $2.3 trillion of bonds in two rounds of quantitative easing, or QE, from December 2008 to June 2011. The central bank is also replacing $400 billion of short-term Treasuries in its holdings with longer-term debt to keep borrowing costs down.
The pound weakened for a second day against the dollar after central bank Governor Mervyn King said the U.K. faced threats from the euro region’s “storm” as he released the quarterly Inflation Report in London.
The Bank of England this month halted its bond-purchase, or quantitative easing, program at 325 billion pounds ($519 billion).
“The pound is lower given King’s concerns over the euro- zone fallout and the possible negative impact on the U.K. economy,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “There were certainly no signs of further QE being off the table.”
The pound fell 0.4 percent to $1.5937 after dropping as much as 0.7 percent, the biggest decline since April 13. Sterling slid 0.5 percent to 79.98 pence per euro.
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