Euro Falls as Irish Note Yields Add to Concern About Region's Debt Crisis

The euro fell for the first time in four days against the dollar as investors speculated Europe’s leaders will struggle to find a permanent mechanism to address the region’s debt crisis.

The shared currency erased gains against the greenback as a spokeswoman for Allied Irish Banks Plc said it has no plans to miss debt payments, even as Irish government two-year note yields rose to 10.18 percent, the highest since 2003. The Dollar Index, which tracks the U.S. currency against six major peers, touched a 15-month low. Currencies tied to growth, including the New Zealand and Australian dollars and South Africa’s rand, were the best performers against the dollar.

“It’s cautionary news for the euro; we’ve seen a little bit of a pullback,” said Brian Dolan, chief strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey. “Look at what the market has shrugged off between Japan, Libya, the intervention. The market is looking at this as good for risk overall.”

The euro fell 0.1 percent to $1.4196 at 5:09 p.m. in New York, after touching $1.4249, the highest since Nov. 5. The dollar traded at 80.97 yen from 81.03 yen yesterday.

The Dollar Index was little changed at 75.427 after reaching the lowest since December 2009. Gold fluctuated in New York as a weaker dollar spurred demand for an alternative investment. Gold futures for April delivery fell 40 cents, to $1,425.40 an ounce.

Euro Counterparts

The 17-nation currency fell against most of its major counterparts after Irish banks were forecast to need an additional 20 billion euros ($28 billion) of capital to absorb losses flowing from any rapid sale of assets, according to Davy, the Dublin-based securities firm.

“The European Central Bank is moving ahead on in to a rate-rising mode and that’s adding pressure to European lawmakers to put meat on the bones of resolving the bailout mechanism,” said Andrew Wilkinson, senior market analyst at Interactive Brokers Group LLC in Greenwich, Connecticut. “This is putting pressure on euro bulls in a risk on environment.”

EU finance chiefs settled yesterday on a permanent rescue fund to lend 500 billion euros as of 2013, while remaining divided over how to get the current stopgap fund to its full capacity. Work thrashing out a solution to the region’s credit woes is due to culminate at a March 24-25 summit of European leaders.

Irish Yields

The yield on the Irish two-year note surged 65 basis points to 9.898 percent, after reaching 10.18 percent, the most since 2003, when Bloomberg began collecting the data.

Catherine Burke, a spokeswoman for Allied Irish Banks, a government-controlled lender, said it has “no plans” to miss interest payments on its bonds.

The euro earlier touched a five-month high against the greenback after European Central Bank Executive Board member Gertrude Tumpel-Gugerell and Governing Council member Yves Mersch both said yesterday that “strong vigilance” is necessary to keep a lid on inflation.

Currencies tied to risk were the top performers against the dollar as implied volatility measured by the JPMorgan Chase & Co. index for seven major currencies fell to the lowest in more than a week. The gauge touched 14.13 on March 17, the highest since June as the yen strengthened to a post-World War II high on March 16.

Kiwi Outlook

New Zealand’s dollar was the best performer against the dollar, appreciating 0.6 percent to 74.01 U.S. cents. The International Monetary Fund said the nation’s central bank may need to raise rates “relatively quickly” once the economy begins to recover. Australia’s dollar rose 0.4 percent to $1.0103 and South Africa’s rand rose 0.8 percent to $6.8974.

The pound rose as much as 0.6 percent to $1.641, the highest since January 2010, as inflation data bolstered the case for the Bank of England to increase rates. Against the euro, sterling appreciated 0.5 percent to 86.75 pence.

Consumer prices rose 4.4 percent in February from a year earlier, according to the Office for National Statistics, higher than the 4.2 percent median forecast of economists in a Bloomberg News survey.

The pound may advance to a level last reached in October 2008 against the dollar if it closes above $1.6380, according to Citigroup Inc.

That rate, reached today, is a 74 percent retracement of sterling’s drop from August 2009 to May 2010, Citigroup technical analysts led by Tom Fitzpatrick in New York wrote in a research note to clients. If the currency closes above $1.6380, he said it may rise to $1.7050, which would be a 2 1/2-year high.

To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net;

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

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