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Euro Tumbles Most in a Year After Report Greece May Drop Common Currency
The euro tumbled the most in a year against the dollar on speculation Greece may stop using the currency, bolstering concern the nation’s debt crisis will spread through the region.
Europe’s shared currency fell against all of its 16 most- traded peers even after Greece denied a report in Der Spiegel magazine that the European Commission called a meeting to discuss the situation. Futures traders raised bets as of May 3 to an almost four-year high that the euro would gain against the dollar. The greenback rose versus the yen after U.S. employers added more jobs than forecast.
“It does bring to the forefront the existential concerns about the euro,” said Samarjit Shankar, a managing director for the foreign-exchange group in Boston at Bank of New York Mellon. “It underscores the risks that have never really gone away but had gone to the back burner.”
The euro dropped 1.5 percent to $1.4316 at 5 p.m. in New York, from $1.4539 yesterday. It touched $1.4311, the lowest level since April 19, and dropped 3.5 percent since May 4, the biggest two-day decline since December 2008.
The common currency fell 0.9 percent to 115.44 yen, from 116.44. The dollar gained 0.7 percent to 80.63 yen, from 80.07.
The euro rose 8.6 percent this year through yesterday as the European Central Bank last month raised its benchmark interest rate for the first time since the financial crisis amid speculation U.S. and Japanese policy makers will lag behind.
Net Longs
The difference in the number of wagers by hedge funds and other large speculators on an advance in the euro compared with those on a drop -- so-called net longs -- was 99,516 on May 3, the highest level since July 2007, figures from the Washington- based Commodity Futures Trading Commission show. The total compared with net longs of 68,279 on April 26.
Greece is lobbying for easier terms on the 110 billion euros ($164 billion) of bailout loans as speculation of a default mounts a year after European leaders set up an unprecedented emergency fund.
European finance officials are gathering in Luxembourg today for an unscheduled meeting that may discuss proposals for restructuring Greek debt, said two European officials familiar with the situation. A German official said the discussions would include a German paper on options for confronting Greece’s growing debt load, which has spurred speculation by investors that a restructuring was a likely outcome.
Greece isn’t considering abandoning use of the euro, the Athens-based Finance Ministry said in an e-mailed statement today on the Der Spiegel article. A spokesman for Luxembourg’s Jean-Claude Juncker, who leads euro-region finance ministers, denied the magazine report.
Capital Flight
“A restructuring is at some point likely to happen, but it’s not in anyone’s interest to have that happen now,” Axel Merk, president of Merk Investments LLC in Palo Alto, California, said in an interview on Bloomberg Television’s “Street Smart” with Carol Massar and Matt Miller. “If they were to leave, it would be a flight of capital out of Greece; there would be a concern of that spreading to other countries.”
The dollar strengthened yesterday versus the euro as the ECB signaled it may not raise interest rates next month. The central bank boosted its key rate in April by a quarter- percentage point to 1.25 percent to curb inflation. It kept the rate unchanged yesterday.
Trichet, at a news conference in Helsinki, refrained from using the phrase “strong vigilance,” which might have signaled a June boost. He instead said inflation risks will be watched “very closely.”
Fed Versus ECB
The Federal Reserve has held its benchmark rate at zero to 0.25 percent since December 2008 to spur the U.S. economy.
Currencies of commodity exporters, which slumped yesterday, were the top performers against the greenback today after the U.S. payrolls report. Gains were capped as raw materials including crude oil erased early advances after Der Spiegel’s report on Greece. The Thomson Reuters/Jefferies CRB Index of raw materials fell 1.1 percent after rising as much as 1.5 percent.
Australia’s dollar gained for the first time in five days, strengthening 1.1 percent to $1.0700. New Zealand’s dollar rose 0.8 percent to 79.07 U.S. cents in its first increase in five days, while the Brazilian real appreciated 0.4 percent to 1.6149 per dollar.
Write-Off Concern
Greek bond yields and the cost of insuring the country’s securities against default rose to records last week, rekindling concern that a debt write-off or extension of repayment terms may be needed to ease the nation’s fiscal crisis.
Greece’s refinancing needs of 58 billion euros are covered this year by the loan package it received in 2010 from the European Union and International Monetary Fund. Next year, the nation is supposed to regain market access and refinance at least three-quarters of its maturing medium- and long-term debt, and then fully fund debt rollovers beginning in mid-2013.
“The saga continues to unfold,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “If you can get rid of debts and clean up the balance sheet, it’s long-term positive for the euro.”
U.S. payrolls increased by 244,000 workers last month, the biggest gain since May 2010, the Labor Department said today in Washington. Economists in a Bloomberg News survey projected an April rise of 185,000. The jobless rate rose to 9 percent, the first increase since November.
To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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