The euro dropped to the lowest level in almost a year against the dollar as escalating concern about Greece’s finances added to pressure on Group of 20 leaders to stem the crisis.
The euro slid versus 12 of its 16 major counterparts as policy makers from G-20 nations meet in Washington today. Europe’s currency headed for a third weekly drop against the yen after the European Union raised its estimate for Greece’s deficit and Moody’s Investors Service cut the nation’s debt rating. The dollar traded close to a one-week high versus the yen before U.S. reports forecast to show improving orders for long-lasting goods and new home sales.
“Chances are G-20 officials will discuss Greece because it could lead to a global financial issue,” said Takashi Kudo, general manager of market information at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp., in Tokyo. “Markets seem to be mounting pressure on Greece to get a bailout, with the euro weakening. Risk aversion is causing the dollar and yen to be bought.”
The euro fell to $1.3260 at 8:42 a.m. in London from $1.3295 in New York yesterday, and touched $1.3202, the lowest level since April 30, 2009. The 16-nation currency declined to 123.88 yen from 124.28 yen, heading for a 0.6 percent drop this week. The dollar traded at 93.41 yen from 93.49 yen, after reaching 93.63 yen, the highest since April 14.
The yen typically strengthens in times of financial turmoil as Japan’s trade surplus frees the nation from dependence on overseas capital. The dollar benefits as the world’s main reserve currency.
The EU lifted its estimate for Greece’s deficit to 13.6 percent of gross domestic product, while Ireland overtook the southern European nation as the EU member with the largest deficit, at 14.3 percent.
“There are a number of countries who could easily go down the same path, and the ability for Europe to bail out all of those economies is, I would imagine, quite limited,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “A resolution is needed quite quickly. Otherwise, the euro is going to continue to weaken.”
Moody’s lowered Greece’s credit rating to A3 from A2, four grades above junk, while credit-default swaps tied to the debt climbed to a record 644 basis points. Greece is prepared to ask euro-region governments for a bridge loan, a Greek government official said, as debt worth $11.3 billion comes due next month and borrowing costs surge to the highest since 1998.
G-20 finance chiefs including U.S. Treasury Secretary Timothy F. Geithner and European Central Bank President Jean- Claude Trichet may also intensify pressure on China to revalue the yuan at today’s talks, which Geithner called an “avenue for advancing U.S. interests” on the Chinese currency.
Central bankers in India and Brazil this week backed a stronger yuan as did the International Monetary Fund and EU governments. Speculation the G-20 will urge China to revalue its currency boosted yuan non-deliverable forwards to a three-month high yesterday.
“Political pressure on China to resume yuan appreciation will likely remain in place at the G-20 meeting,” said Sebastien Barbe, head of emerging market research at Credit Agricole CIB in Hong Kong. “This should keep the dollar-yuan NDF discount wide.”
Twelve-month non-deliverable forwards were at 6.6132 yuan per dollar after reaching 6.5930 yesterday, the strongest level since Jan. 11, according to data compiled by Bloomberg. The contracts reflect bets the currency will appreciate 3.1 percent from the spot rate of 6.8276.
The dollar rose to a seven-week high versus the Swiss franc on speculation signs of U.S. growth will increase.
Durable goods orders rose for a fourth month in March and new home sales broke a stretch of declines that started in November, Bloomberg News surveys of economists showed before the Commerce Department reports the data today.
“Renewed optimism about the strength of the U.S. economy is adding to the dollar’s appeal,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “Tonight’s data is all about quality, not quantity, with U.S. durable goods orders due for release.”
The U.S. currency climbed to 1.0801 Swiss francs from 1.0781, after advancing to 1.0850 francs, the strongest since March 2.
‘Close to Average’
The Australian dollar fell as central bank Governor Glenn Stevens today said interest rates are “pretty close to average,” damping expectations he will extend the nation’s most aggressive tightening cycle since 2000.
“There was one line in there that says interest rates are now pretty close to average, and that has seen the Australian dollar come off,” said Robert Rennie, head of currency research in Sydney at Westpac Banking Corp. “What is important to the market in the short term is what’s the outlook for interest rates.”
The so-called Aussie dropped against all 16 major counterparts after Stevens said policy makers are focused on ensuring the nation’s economic rebound is durable.
Australia’s currency fell 0.8 percent to 92.02 U.S. cents. It dropped 0.9 percent to 85.95 yen.