The euro touched its lowest level in two years before regionalfinance ministers gather in Brussels today to discusscrisis-fighting measures adopted by heads of government at a summitlast month.

The 17-nation currency held three days of declines beforeEuropean Central Bank President Mario Draghi addresses EuropeanUnion lawmakers today. The Japanese currency reached a one-monthhigh versus the euro after Japan released May trade data and asstock declines boosted demand for haven assets. Australia's dollardropped after Chinese Premier Wen Jiabao said downward pressure onthe economy is still “relatively large,” in remarks reportedyesterday.

“The euro group has to provide a lot of nuts and bolts to whathad been decided at the EU summit,” said Ulrich Leuchtmann, head ofcurrency strategy at Commerzbank AG in Frankfurt. “If they decidesomething meaningful those who like it might buy euro-dollar upcautiously, but they will be disappointed as they had been lastweek by those who are more skeptical” pushing the currencylower.

The euro slid to $1.2251, the weakest since July 2010, beforetrading at $1.2275 at 9:44 a.m. London time, little changed fromthe New York close on July 6. The shared currency bought 97.82 yenafter earlier touching 97.43, the lowest since June 5. Japan'scurrency was at 79.68 per dollar. The Aussie declined 0.6 percentto $1.0157 and fell 0.5 percent to 80.95 yen.

The Stoxx Europe 600 Index of shares lost 0.5 percent, while theMSCI Asia Pacific Index dropped 1.6 percent.

Euro-region leaders agreed at a summit in June to relaxconditions on emergency loans for Spanish banks. Europe won'tobtain the powers to recapitalize banks directly in time for theinjection of as much as 100 billion euros into Spain's financialsystem by mid-2013, a European official said on July 6.

“We have to move quickly on banking supervision and we have tomove quickly on the direct recapitalization of Spanish banks,”French Finance Minister Pierre Moscovici said yesterday.

Draghi is scheduled to speak in Brussels after the central bankcut the main refinancing rate to a record 0.75 percent on July 5.He said after last week's decision that the cut may have only a“muted” economic impact and growth in the euro area “continues toremain weak with heightened uncertainty.”

The euro will “probably head down towards the $1.21 supportlevel within the next week and a half,” Andrew Su, the Sydney-basedchief executive officer of Compass Global Markets, said in aBloomberg Television interview today. It may then test the lowreached in June 2010 within the next couple of months, Su said.

Euro Lows

Europe's shared currency reached $1.1877 on June 7, 2010, theweakest since 2006, according to data compiled by Bloomberg. Itlast touched $1.21 on June 11, 2010, when it declined to as low as$1.2045, the data show. Support is an area on a chart where ordersto buy may be clustered.

The euro has fallen 3.3 percent in the past three months, theworst performance among the 10 developed-nation currencies trackedby Bloomberg Correlation-Weighted Indexes. The yen was the biggestgainer in the period, rising 6.5 percent.

The yen tends to appreciate in periods of financial and economicturmoil because Japan's current-account surplus makes it lessreliant on foreign capital. Government data today showed thesurplus was 215.1 billion yen in May, compared with the medianestimate for an excess of 493.1 billion yen in a Bloomberg Newssurvey of economists. Machinery orders, an indicator of capitalspending, slumped 14.8 percent in May from April, the CabinetOffice said in a separate report.

Bank of Japan policy makers are set to meet on July 11-12.Governor Masaaki Shirakawa has said the central bank is fullycommitted to pursuing “powerful monetary easing” until a 1 percentinflation target set in February is in sight. The central bank hasexpanded its asset-purchase fund, its main policy tool, by 20trillion yen this year, in a bid to stimulate growth.

Citigroup Inc. expects the BOJ to leave policy unchanged,currency strategist Osamu Takashima wrote in a report today.

“Among Japanese economists, it's expected that the BOJ willexpand the size of its asset purchase program,” Takashima wrote.“Should the BOJ surprise the market, it could be associated with asomewhat stronger yen.”

The Dollar Index, which Intercontinental Exchange Inc. uses totrack the greenback against the currencies of six major U.S. tradepartners, was little changed after an advance last week.

Lower Capacity

“Failure to act aggressively now will lower the capacity of theeconomy for many years to come,” Chicago Federal Reserve PresidentCharles Evans said in the text of remarks today in Bangkok. “Isupport using our balance sheet to provide additionalaccommodation.”

The Dollar Index was at 83.324 after rising 2.1 percent in thefive days ended July 6.

Australia's currency slid after the official Xinhua News Agencyreported yesterday that Chinese Premier Wen said the governmentwill intensify fine-tuning of policies in response to downsiderisks to growth. The comments came after the South Pacific nation'sbiggest trading partner announced the second interest-rate cut in amonth.

Consumer prices in China rose 2.2 percent in June from a yearearlier, according to a report released today. That's the slowestpace in 29 months and compares with the median forecast for a 2.3percent inflation rate in a Bloomberg poll.

Bloomberg News

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