Euro Touches Four-Month Low Amid Greek Government Concern (Update 1)
The euro touched its lowest level in almost four months after Greece’s political leaders failed to form a ruling coalition, deepening speculation the country will have to leave the currency bloc.
Demand for the euro was damped before Greek leaders seek agreement today on an interim government that will schedule new elections. The Dollar Index extended its longest stretch of daily advances on record as Asian stocks continued a global equity rout and before the Federal Reserve releases minutes of its April meeting. The yen weakened versus most of its 16 major peers after a report showed Japan’s machinery orders fell in March.
“Risk off has done a lot of damage to the euro,” said Gavin Stacey, chief interest-rate strategist at Barclays Capital in Sydney. “If we are to see Greece leave the euro, I suspect the initial reaction will be even more catastrophic.”
The 17-nation euro matched yesterday’s low of $1.2722, the weakest since Jan. 17, before trading at $1.2733 at 11:50 a.m. in Tokyo, little changed from the May 15 close. The shared currency bought 102.32 yen from 102.07. The dollar added 0.2 percent to 80.36 yen.
New elections in Greece may be scheduled as early as June 10 after President Karolos Papoulias failed to broker a governing coalition in meetings yesterday with Pasok party head Evangelos Venizelos and other political leaders. The new ballot will follow an inconclusive May 6 vote that produced no clear majority.
‘Accept the Conditions’
The deadlock has sparked uncertainty over Greece’s pledged spending cuts required by the terms of its two bailouts worth 240 billion euros ($306 billion) negotiated since May 2010.
Greece will “have to accept the conditions” to stay in the euro, German Finance Minister Wolfgang Schaeuble told reporters at a meeting of European finance ministers yesterday in Brussels. “Otherwise it isn’t possible. No responsible candidate can hide that from the electorate.”
Elsewhere in Europe, investor concern over Spain’s ability to reduce its budget shortfall has increased since Prime Minister Mariano Rajoy announced in March that the country will miss a 2012 deficit goal set by the European Union. Spanish 10- year yields this week climbed as high as 6.36 percent, the most since Nov. 30. Spain is scheduled to sell debt due in 2015 and 2016 tomorrow.
Figures from the European Union’s statistics office yesterday showed gross domestic product in the euro region stagnated in the three months through March 31 after a 0.3 percent drop in the previous period. That was better than the 0.2 percent contraction forecast by economists in a Bloomberg News survey.
The euro has lost 1 percent this year, Bloomberg Correlation-Weighted Indexes showed. The dollar rose 1 percent over the same period, according to the indexes which track 10 developed-nation currencies.
The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to gauge the greenback against the currencies of six major U.S. trading partners, rose 0.1 percent to 81.279, extending the longest string of gains since its inception in 1973.
The Fed will release minutes of its April 25 meeting later today. Chairman Ben S. Bernanke said after the most recent meeting of policy makers that he’s prepared to “do more” to boost the economic recovery and ensure that inflation remains close to target. Officials have said borrowing costs are likely to remain “exceptionally low” at least through late 2014.
The U.S. central bank bought $2.3 trillion of bonds in two rounds of so-called quantitative easing, or QE, from December 2008 to June 2011. The Fed is also replacing $400 billion of short-term Treasuries in its holdings with longer-term debt to keep borrowing costs down, under a program scheduled to end next month.
“The markets are awaiting the minutes and any Fed speech to get a sense of whether or not another round of QE is in the pipeline,” Barclays’ Stacey said. “The U.S. dollar would weaken on the back of further QE and by improvement in risk appetite.”
The yen extended yesterday’s decline against the dollar after data from Japan’s Cabinet Office showed machinery orders decreased 2.8 percent in March after climbing a revised 2.8 percent in the previous month. The median economist estimate signaled at 3.5 percent drop. Orders can swing between gains and declines depending on the timing of major projects.