Euro Reaches Decade Low Vs. Yen

Greek debt crisis and concerns about growth dampen currency

The euro touched the lowest in more than a decade versus the yen after European governments signaled bondholders may have to take bigger losses on Greek debt, deepening concern the debt crisis will damp recovery prospects.

The 17-nation currency reached an eight-month low versus the dollar as global stocks slumped. Russia’s ruble fell for a fifth day versus the dollar on concern the euro-area debt crisis will hurt oil demand. The Australian dollar declined to the least in more than a year versus the greenback after the Reserve Bank of Australia held its key rate at 4.75 percent.

“Central banks are now rebalancing their reserves and whereas earlier in the year that meant buying euros and non- dollar currencies, we’re now in the reverse situation,” said Ray Attrill, a senior currency strategist at BNP Paribas SA in New York. “That’s probably amplifying the pressures that are coming from safe-haven flows, which tend to support the dollar.”

The euro was at 101.32 yen at 8:49 a.m. in New York from 100.97 yen yesterday. It dropped to as low as 100.76, the least since June 2001. The common currency rose 0.2 percent to $1.3205, from $1.3176, after touching $1.3146, the weakest since Jan. 13. The ruble depreciated to 32.81 per dollar, from 32.57, bound for its weakest close in more than two years. The Australian dollar slid 0.8 percent to 94.49 U.S. cents. It fell to 94.14 cents earlier, the least since Sept. 20, 2010.

The MSCI World equity index dropped 1.6 percent and futures on the Standard & Poor’s 500 Index lost 1.1 percent.

Leader Remarks
European Central Bank President Jean-Claude Trichet will speak to the European Parliament’s economic and monetary affairs committee at 9 a.m. New York time and Federal Reserve President Ben S. Bernanke will testify before a congressional panel about the economic outlook at 10 a.m.

European finance ministers meeting in Luxembourg considered “technical revisions” to a July deal that foresaw investors contributing 50 billion euros to a 159 billion-euro rescue. That “private sector involvement” includes debt swaps and rollovers.

“As far as PSI is concerned, we have to take into account that we have experienced changes since the decision we have taken on July 21,” Luxembourg Prime Minister Jean-Claude Juncker, who chairs the group of euro-area finance ministers, told reporters today. “These are technical revisions we are discussing.”

Greek Decision
The ministers also pushed back a decision on the release of Greece’s next loan installment until after Oct. 13. It was the second postponement of a vote originally slated for yesterday as part of the 110 billion-euro lifeline granted to Greece last year.

“Debate about PSI being back on the agenda raises the risk of a disorderly default, with negative connotations for the banking sector,” said CIBC’s Stretch.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, reached 79.823, the highest level since Jan. 13, before trading at 79.627. The greenback tends to appreciate during periods of economic and financial turmoil as investors take refuge in the world’s main reserve currency.

The U.S. currency gained 9 percent in the past month in the second-best performance among the 10 developed nation peers tracked by Bloomberg Correlation-Weighted Currency Indexes. The yen appreciated 9.2 percent in the same period.

Growth Forecast
Goldman Sachs cut its global 2012 economic growth forecast, adding it expects a mild recession in Germany and France and a deeper downturn in the euro area’s periphery over the next few quarters, economists Jan Hatzius and Dominic Wilson wrote in a note yesterday.

Goldman also lowered its end-2011 forecast for the euro to $1.38 from an earlier projection for it to trade at $1.40. The common currency will be at 106 yen in three months, compared with a previous estimate of 108 yen, the bank said in a separate report.

“There isn’t much progress in containing the sovereign problem, and Europe will possibly slip into recession,” said Kengo Suzuki, manager of the foreign-bond department in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest listed bank. “That’s negative for the euro.”

Japanese Finance Minister Jun Azumi said the euro’s weakness against the yen is “extreme” and isn’t good for the stability of the global economy.

The euro’s 14-day relative strength index versus the dollar and the yen were both below 30, a level that some traders see as signaling an asset’s price has fallen too rapidly and may be poised for a rebound.

“We may see some buying back of the euro given the currency has been oversold,” said Mizuho’s Suzuki. “It’s going to be short-lived.”

The ruble declined after Urals crude, the main Russian oil blend, fell 1.6 percent yesterday to its lowest close since Feb. 15. The commodity traded little changed today.

Bloomberg News

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