Euro Falls Versus Dollar for Fifth Month as Greece's Budget Crisis Spreads

The euro dropped for a fifth month versus the dollar in the longest stretch of losses since November 2008 as Europe’s deficit crisis spread and officials negotiated a potential $159 billion rescue for Greece.

The dollar rose yesterday to a three-week high versus the yen after the Federal Reserve said the labor market is “beginning to improve” before next week’s payrolls report. The franc was the only currency to drop in April versus the euro among its most-traded counterparts as the Swiss National Bank cited measures to limit appreciation.

“We’re underweight the euro,” said Jonathan Lewis, founding principal of New York-based Samson Capital Advisors LLC, which manages more than $4 billion. “If past is prologue, markets won’t be satisfied with the aid package. Even if it looks impressive, the market will focus on the next country that might need aid.”

The euro fell 1.6 percent to $1.3294 yesterday, from $1.3510 on March 31. The euro dropped 1.2 percent to 124.78 yen, from 126.27. The dollar rose 0.4 percent to 93.85 yen, from 93.47, after reaching 94.58 yesterday, the highest level since April 5.

The 16-nation euro touched $1.3115 on April 28, the lowest level since April 2009, when Spain’s credit rating was reduced to AA from AA+ with a negative outlook by Standard & Poor’s, a sign the debt crisis is spreading. It fell below $1.32 the previous day for the first time in a year after S&P cut Greece’s credit rating to junk and lowered Portugal’s to the third-lowest investment grade.

Outlook for Aid

European Commission President Jose Barroso said yesterday at a briefing in Beijing that he’s confident a rescue package for the Greek government led by the European Union and the International Monetary Fund will be completed in days.

Polls show a majority of Germans oppose helping Greece before a regional election on May 9 in North Rhine-Westphalia, Germany’s most populous state.

Greece’s Prime Minister George Papandreou said the nation’s survival was at stake in talks to win a bailout including budget cuts denounced by unions as “savage.” Signs of agreement on an accord that may require 24 billion euros ($32 billion) in austerity measures ended a bond-market sell-off across Europe this week.

Futures traders placed the most bets on record that the euro will fall against the dollar.

The number of wagers by hedge funds and other large speculators for a decline in the euro rose on April 27 to 89,013 contracts more than those anticipating a gain, compared with 71,424 a week earlier, according to Commodity Futures Trading Commission figures.

‘Piecemeal’ Approach

“They’ve been dealing with the crisis piecemeal,” said Daniel Schwartz, a senior economist at Argonaut Capital Management LP, which oversees about $400 million in assets. “The risk that you have systemic crisis remains even if they address the Greece issue.”

The Fed cited in its policy statement on April 28 a stronger job market while reiterating its intention to keep the target lending rate near zero for an “extended period.” Last month, it said the labor market “is stabilizing.”

U.S. gross domestic product increased in the first quarter at a 3.2 percent annual rate after expanding at a 5.6 percent pace in the fourth quarter, the Commerce Department reported yesterday. The median forecast of 85 economists in a Bloomberg News survey was for a 3.3 percent advance.

“The number reflects an economic recovery, but it’s unlikely to change the Fed’s position,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp., the world’s largest custodial bank, with more than $20 trillion in assets under administration.

Payrolls Report

Employers added 200,000 workers in April after the addition of 162,000 in the previous month, according to the median forecast of 60 economists in a Bloomberg News survey. The report from the Labor Department is due on May 7.

The Swiss franc dropped against the euro for the first month since June as Swiss National Bank Chairman Philipp Hildebrand said policy makers are “acting decisively to prevent an excessive appreciation” of the currency.

Any threat to the stability of the euro “would, by definition, have a negative impact on Switzerland, above all if the Swiss franc were to appreciate sharply due to its role as a safe-haven currency,” Hildebrand said yesterday in the transcript of a speech in Bern, Switzerland.

The franc declined 0.6 percent in April to 1.4327 per euro, from 1.4239 on March 31.

Central banks can intervene in foreign-exchange markets by buying or selling currencies to influence rates.

The pound rose last month for the first time since October, increasing 0.6 percent to $1.5274 as evidence of a recovering economy overshadowed political turmoil before a May 6 election.

Nationwide Building Society said this week that house prices rose 1 percent in April, more than twice the 0.4 percent forecast in a Bloomberg News survey of economists.

To contact the reporter on this story: Ben Levisohn in New York at blevisohn@bloomberg.net

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