Euro Depreciates From a One-Week High on Debt Crisis Containment Concern

The euro dropped against the yen and the dollar amid concern European leaders will fail to agree on a solution for the region’s debt crisis.

The 17-nation euro earlier touched a one-week high against the dollar as the European Union proposed a financial- transactions tax to take effect in 2014 and Finland’s parliament approved an expansion to the region’s rescue fund. European leaders disagreed about the size of writedowns on banks’ holdings of Greek government debt. Currencies of commodity- exporting countries, including Canada’s dollar and Brazil’s real, dropped as raw material prices fell.

“People got a little bit ahead of themselves with this risk on the table,” said Brian Taylor, chief currency trader a Manufacturers & Traders Trust in Buffalo New York. “People are more concerned with the broader issues, especially what’s going to happen in Europe. You’re seeing the market say ‘it’s better to be safe than sorry.’”

The shared currency dropped 0.3 percent to $1.3543 at 5 p.m. in New York after reaching $1.3690, the strongest intraday level since Sept. 21. The euro was down 0.6 percent to 103.75 yen, on course for a 5.9 percent decline so far this month. Japan’s currency gained 0.3 percent to 76.61 per dollar.

Euro Path

The euro has fallen 1.4 percent during past three months against nine developed-market peers, taking its 12-month decline to 2.5 percent, according to Bloomberg Correlation-Weighted Currency Indexes. The yen has strengthened the most among the nine currencies in the last three months, rising 12 percent, and the dollar gained 5.9 percent.

President Barack Obama said Europe’s debt crisis continues to be a drag on the U.S. economy and the response of governments there hasn’t been as robust as needed.

“In Europe, we haven’t seen them deal with their banking system and their financial system as effectively as they needed to,” Obama said in response to a question about U.S. economic growth during a roundtable discussion on Hispanic issues at the White House.

The EU’s financial-transaction levy would set minimum tax rates for transactions throughout the 27-nation EU, the European Commission, the bloc’s Brussels-based executive, said in a statement. The measure would have to be unanimously approved by the 27 countries.

Tax Take

The tax would raise about 57 billion euros ($78 billion) a year and would “ensure that the financial sector makes a fair contribution at a time of fiscal consolidation,” the commission said in the statement.

“Even with the various reported plans that are being worked on, even if we get as far as something being put out there and announced, the span of time it’ll take between announcement and implementation is very long,” said David Mann, regional head of research for the Americas at Standard Chartered Plc in New York.

The European Commission opposed ideas that are being floated by some government officials to get banks to accept bigger so-called haircuts on Greek debt holdings and doesn’t want to have talks about any such attempt, an official said on condition of anonymity because the deliberations are private.

Bailout Vote

Finland’s parliament approved the expansion of the 440 billion-euro European Financial Stability Facility, bringing to nine the number of euro members to have ratified the mechanism. An expanded role of the EFSF was agreed to by euro-zone members on July 21 and must be ratified by all member states.

Brazil’s real and Canada’s dollar were among the worst- performing major currencies. The real fell 1.9 percent to 1.8408 per dollar and the Canadian dollar weakened 1.4 percent to C$1.0335 per U.S. dollar.

The Thomson Reuters/Jefferies CRB index of raw materials lost 2.5 percent and the Standard & Poor’s 500 Index fell 2.1 percent.

German Chancellor Angela Merkel said she’s waiting for a report from a team of officials from the European Union, European Central Bank and International Monetary Fund on Greece’s progress before deciding whether a second financing package for the country agreed on July 21 needs to be revised.

“We need to wait to see what the expert mission, the troika, determines and what it will say in relation to whether there needs to be new talks or not,” Merkel told Athens-based state broadcaster NET in an interview.

Germany still privately anticipates that the Mediterranean nation will default on its debt as early as this year, Bild reported Merkel as saying earlier at a meeting of Christian Democratic lawmakers, citing unidentified participants.

Yen Haven

“The focus is still very much on matters in Europe and the progress being made to resolve the debt crisis,” said Gavin Friend, a markets strategist at National Australia Bank Ltd. in London. “The yen is finding support from the safe-haven bid.”

Japan’s currency may climb to as strong as 75 per dollar “within weeks” as investors continue to purchase the currency as a hedge against financial market turmoil stemming from the euro-area debt crisis, Friend said.

China’s yuan climbed after the People’s Bank of China set its daily reference rate at the strongest level since July 2005. The nation’s consumer prices rose 6.2 percent in August from a year earlier after a 6.5 percent increase in July.

“Today’s fixing reflects China’s determination to tame inflation with a stronger currency,” said Edmond Law, deputy head of foreign exchange at BWC Capital Markets in Hong Kong. “The inflation slowdown in August was matched by the yuan’s gain for the same period. Yuan appreciation has proved useful in reining in prices.”

The yuan strengthened to 6.3938 per dollar from 6.3992, the biggest gain since Sept. 16.

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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