The euro fell to the lowest level in six weeks versus the dollar after partial election results from Italy suggested the four-way race may end in a divided parliament requiring another vote.
The yen rose from the weakest since May 2010 against the dollar and rallied against the euro as the election renewed the traditional refuge appeal of the Japanese currency. The 17- nation euro erased earlier gains as forecasts by state broadcaster RAI showed Democratic Party candidate Pier Luigi Bersani winning the lower chamber and Silvio Berlusconi with a blocking minority in the Senate. The pound overtook the yen as the biggest loser this year out of 10-developed nation currencies following the U.K.’s rating downgrade.
“There’s a flight to safety that’s symptomatic of the frustration investors are facing due to increased uncertainty from the political sphere,” Ravi Bharadwaj, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co. (WU:US), said in a telephone interview. “The sudden drop we saw in the euro was reflective of that level of frustration.”
The euro declined 1 percent to $1.306 as of 5 p.m. in New York after gaining as much as 1 percent. It touched $1.3048, the lowest since Jan. 10. The yen appreciated 1.7 percent to 91.82 per dollar after touching 90.88, the strongest since Jan. 31. Japan’s currency added 2.7 percent to 119.93 per euro after gaining as much as 3.6 percent, the most since Jan. 24.
The euro rose 1.3 percent this year, according to a gauge of 10 currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen fell 3.9 percent, the second biggest decline after the pound’s 5.2 percent loss. The dollar added 2.4 percent.
South Africa’s rand rose to its strongest level in more than a week as investors gauged the currency’s slump this year, the worst among emerging-market currencies, is overdone. The currency was little changed at 8.8638 per dollar after touching 8.8098, strongest since Feb. 15.
The Canadian dollar fell to its lowest level against the greenback in nearly eight months on speculation Bank of Canada Governor Mark Carney may suggest economic growth is slowing more than forecast. The so-called loonie depreciated 0.5 percent to C$1.0262 per U.S. dollar after earlier falling to C$1.0278, its weakest since June 29.
Colombia’s peso fell the most versus the dollar since Aug. 15 after Banco de la Republica lowered the overnight lending rate by a quarter-percentage point to 3.75 percent on last week. The currency decreased 0.8 percent before trading down 0.7 percent to 1,812.20 per dollar.
In Italy, besides Berlusconi, the big winner was Beppe Grillo, the comic-turned-anti-corruption activist who called established politicians “failures.” His Five Star movement contesting its first election took 25.4 percent of the lower- house vote compared to 25.9 percent for Bersani’s bloc, the pre- election front-runner, according to Interior Ministry data from 82 percent of polling stations.
The result may lead to President Giorgio Napolitano installing an interim government, such as the one headed by incumbent Mario Monti, to write a new election law as the prelude to another vote.
“We think the euro will remain under pressure until we get more clarity,” Sireen Harajli, a foreign-exchange strategist in New York at Credit Agricole SA (ACA), said in a telephone interview. “There’s a lot of uncertainty there, and it’s weighing on the euro and risk assets in general.”
The yen fell earlier on speculation Prime Minister Shinzo Abe will select Haruhiko Kuroda, a supporter of aggressive monetary easing, as the next Bank of Japan (8301) governor. With current BOJ Governor Masaaki Shirakawa and two deputies stepping down March 19, Abe is set to reshape the leadership of a central bank that has adopted his 2 percent inflation target and plans to begin open-ended asset purchases next year.
“The market seems to have formed an opinion that Kuroda is a dove and if he indeed becomes the new BOJ governor, he would be willing to do much more to support growth,” said Geoffrey Yu, a senior currency strategist at UBS AG in London. “The yen is weakening on speculation there will be more policy easing.”
The central bank had “substantial room” for further loosening and additional measures may be justified this year, Kuroda, currently president of the Asian Development Bank, said in a Feb. 11 interview.
Futures traders increased bets the yen will weaken against the dollar, figures from the Commodity Futures Trading Commission released Feb. 22 showed. The difference in the number of wagers by hedge funds and other large speculators on a decline compared with those on a gain -- so-called net shorts -- was 65,891 on Feb. 19, compared with 61,306 a week earlier.
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