Euro Falls Most in Two Weeks Amid Concern Region's Debt Crisis May Worsen

Euro Falls Most in Two Weeks Amid Concern Region's Debt Crisis May Worsen
By Catarina Saraiva and Charles Mead - Mar 8, 2011 11:02 PM GMT+0200
The euro fell the most in two weeks against the dollar as concern the region’s leaders won’t agree on a solution to its debt crisis damped appetite for its assets.

The 17-nation currency retreated from almost the strongest level in nine months against the yen. Financing costs rose as Greece sold 1.625 billion euros ($2.3 billion) of treasury bills a day after having its credit rating cut by Moody’s Investors Service. The Norwegian krone declined against 15 of its 16 major peers as oil fell for the first time in three days.

“It’s a combination of overextended speculative positioning and renewed sovereign-debt jitters,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “The post-ECB rally has gone too far too fast and the euro is coming back to the reality of still very uncertain prospects for the peripheral economies.”

The shared currency declined 0.5 percent to $1.3901 at 3:57 p.m. in New York. It reached $1.4036 yesterday, the strongest level since Nov. 8. It was little changed at 114.85 yen after touching 116 on March 4, the highest since May 14. The dollar strengthened 0.5 percent to 82.68 yen.

IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against currencies including the euro and yen, climbed for a second day, gaining 0.4 percent to 76.803.
Euro Summit

The euro, which has risen 3.9 percent against the dollar this year, has struggled to extend its advance beyond $1.40 as European Union leaders clashed about how to deal with the sovereign-debt crisis that forced Ireland and Greece to seek financial aid last year. The 27-nation EU intends to approve a “comprehensive” package of measures at a March 24-25 summit in a bid to calm bond markets.

“As we get closer to the results of the euro summit and you have these concerns lingering and spreads widening, you have these pent-up aggressions playing out,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “Being overweight euros is probably not the most prudent decision.”

The euro may fall to $1.3714 against the dollar, the lowest level in more than a week, if it closes below so-called support at $1.3948, according to Royal Bank of Canada.

A daily close below that level “would suggest an erosion of upward momentum” for Europe’s single currency, George Davis, chief technical analyst for fixed income and currency strategy at RBC in Toronto, wrote today in a research note. Support is an area on a chart where orders may be clustered.

The yield on 10-year Greek debt jumped as much as 46 basis points to the most since before the euro was created in 1999, according to data compiled by Bloomberg. Greece sold the 26-week bills today to yield 4.75 percent, up from 4.64 percent the last time the securities were sold in February, the Athens-based Public Debt Management Agency said.
Portugal Notes

Portugal plans to sell up to 1 billion euros of September 2013 notes tomorrow, its second auction this year.

The euro climbed 1.2 percent in the past week, according to Bloomberg Correlation-Weighted Currency Indexes, which track the currencies of 10 developed nations, fueled by speculation that the European Central Bank may raise interest rates as early as next month to contain inflation.

“There are other issues than simply a more hawkish ECB,” said John McCarthy, director of currency trading at ING Groep NV in New York. “The implication of higher rates is also there. The last thing those countries need is higher interest rates.”

New Zealand’s dollar advanced, halting a five-day loss, as a technical indicator showed its recent declines may have been excessive. The kiwi rebounded from the weakest level since September against the yen as traders reduced their bets that the central bank will cut interest rates at its meeting this week.

The New Zealand dollar rose to 73.93 U.S. cents from 73.69 in New York yesterday, after falling to 73.39 on March 4, the weakest since Oct. 1. The kiwi gained to 61.09 yen from 60.60 yen yesterday, when it touched 60.35 yen, the weakest level since Sept. 9.
Krone Falls

Norway’s krone depreciated by 0.6 percent to 5.5866 per dollar and fell 0.1 percent against the euro, to 7.7661.

Crude oil traded in New York fell 0.5 percent today as the Organization of Petroleum Exporting Countries discussed the possibility of boosting output, easing concern that supply shortages may be prolonged. It reached $106.95 yesterday, the most since September 2008.

The Swiss franc dropped 1 percent against the dollar, the biggest drop of any major counterpart versus the greenback, to 93.56 centimes. The franc depreciated 0.5 percent against the euro to 1.3008, and touched 1.3040, the weakest level since Feb. 16.

The pound reached a one-week low against the dollar and snapped a four-day decline versus the euro. Retail sales dropped 0.4 percent from January, when they gained 2.3 percent, a report from the British Retail Consortium and KPMG showed. Bank of England policy makers will maintain the U.K. interest rate at 0.5 percent on March 10, according to all 61 economists surveyed by Bloomberg News.

The pound was 0.3 percent lower at $1.6156, after touching $1.6126, the least since Feb. 28. It strengthened to 86.06 pence per euro from 86.21 pence, after reaching 86.36 pence, the weakest since Jan. 28.

To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Charles Mead in New York at cmead8@bloomberg.net

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

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