Euro Drops for Second Day Ahead of EU Summit on Debt, Portugal Budget Vote

The franc appreciated before a Portuguese vote that may push the nation to an early election and European bailout, boosting demand for the safest assets.

The Swiss currency strengthened versus all of its 16 major peers as a U.S.-led alliance prepared attacks on Libyan ground forces. The pound weakened as minutes of the Bank of England’s March 10 meeting showed fewer dissenting policy makers calling for an interest-rate increase than some investors predicted. The euro, dollar and yen were little changed versus each other.

“The main thing for Euro-Swiss is the talk around Portugal and the vote today,” said Geoff Kendrick, head of European foreign-exchange strategy at Nomura International Plc in London. “It is starting to look like they may need to take some money” from the European bailout fund, he said.

The franc appreciated 0.4 percent to 1.2779 per euro as of 10:40 a.m. in London and strengthened 0.5 percent to 89.94 centimes per dollar. The euro was little changed at $1.4206.

Portuguese Prime Minister Jose Socrates will today face a vote against his deficit-cutting plan.

Socrates has been attempting to reach a compromise with opposition parties, “but the opposition does not seem to buy into this,” Nicola Mai, a London-based economist at JPMorgan Chase & Co., wrote in a note to investors. “The likelihood that the Portuguese government will fall this week looks high.”

Photographer: Chris Ratcliffe/Bloomberg

The euro fell to $1.4172 as of 9:03 a.m. in Tokyo from $1.4196 in New York yesterday, when it weakened 0.2 percent. Close

The euro fell to $1.4172 as of 9:03 a.m. in Tokyo from $1.4196 in New York yesterday,... Read More

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Photographer: Chris Ratcliffe/Bloomberg

The euro fell to $1.4172 as of 9:03 a.m. in Tokyo from $1.4196 in New York yesterday, when it weakened 0.2 percent.

EU leaders are divided over how to let the euro-region stopgap fund spend its full capacity of 440 billion euros ($624 billion) to ease credit woes as a March 24-25 summit approaches. Policy makers have settled on a permanent rescue fund able to lend 500 billion euros as of 2013.

Pound, BOE

“People are looking at two things this morning: Portugal and the U.K.,” said Geoffrey Yu, a foreign-exchange strategist at UBS AG in London. “Maybe Portugal’s austerity budget won’t go through, and they will go cap-in-hand for a bailout. That could be weighing on the euro a little bit. Most of the good news is already priced in.”

The pound fell 0.3 percent to $1.6318 and depreciated 0.2 percent to 86.94 pence per euro. Sterling reached $1.6401 yesterday, the highest since January 2010, after inflation data surpassed forecasts and spurred bets on interest-rate increases.

Policy makers voted 6-3 to keep rates steady on March 10 and saw “merit in waiting” to assess the effect of higher oil prices on the economy, the Bank of England minutes showed.

“There was some hope that another voter could go for a rate hike this month,” Nomura’s Kendrick said. “There is some disappointment that it was still a 6-3 split.”

U.K. Budget, Japan

Chancellor of the Exchequer George Osborne presents the U.K. budget today. He will increase the level at which British workers begin paying tax and offer support for first-time homebuyers, a person with knowledge of the plans said. He will give updated economic forecasts for the nation when he addresses lawmakers at 12:30 p.m. in London.

Japan’s currency was little changed versus the dollar and euro. Levels of iodine unsafe for infants were reported in Tokyo tap water as workers struggled to reconnect power to the Fukushima Dai-Ichi nuclear plant, which was crippled by the March 11 earthquake and ensuing tsunami. Prime Minister Naoto Kan today ordered a halt to milk and parsley shipments from a prefecture between Fukushima and Tokyo after tests showed radiation leaked into the sea and tainted some food.

The yen strengthened less than 0.1 percent to 80.92 per dollar and was unchanged at 114.95 per euro.

Japan’s government today estimated the damage from the earthquake and tsunami at as much as 25 trillion yen ($309 billion), almost four times the costs imposed by Hurricane Katrina on the U.S.

To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net.

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.

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