Euro Drops to 3-Month Low After Greek, French Elections
The euro weakened to a more than three-month low after Francois Hollande was elected president of France and as Greek voters flocked to anti-bailout parties, stoking concern austerity efforts in Europe may be derailed.
The 17-nation currency slid for a sixth day, its longest series of declines since September, dropping as much as 1 percent before paring losses. Hollande, who becomes the first Socialist in 17 years to control Europe’s second-biggest economy, pledged to push for less austerity and more growth in the region. The yen weakened against most of its major counterparts as stocks gained, boosting demand for risky assets.
“The outcomes in both France and Greece are decidedly negative for the euro,” said Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage. “There’s still a risk that we see this result in some kind of clashes between France and Germany going forward, based on their views on growth versus austerity. That is a key risk for the euro.”
The euro declined to $1.2955, the weakest since Jan. 25, before trading 0.3 percent lower at $1.3051 at 5 p.m. New York time. It dropped 0.2 percent to 104.28 yen. The U.S. dollar advanced 0.1 percent to 79.92 yen.
South Africa’s rand led gains among the most-traded currencies, rising 0.4 percent to 7.7979 per U.S. dollar, and Canada’s dollar added 0.3 percent to 99.31 cents per U.S. dollar.
The Standard & Poor’s 500 Index (SPX) was little changed after earlier dropping as much as 0.4 percent.
Hollande’s platform calls for policies German Chancellor Angela Merkel opposes, including increased spending and delayed deficit cuts. He used his campaign to call for an activist European Central Bank, defying Germany. Merkel telephoned Hollande to congratulate him and to invite him for talks in Berlin “as soon as possible,” according to a statement from her government.
Greek elections left the two biggest parties short of the clear majority to keep bailout efforts on track. With the nation dependent on rescue funds to stay in the euro, the next government will need to find cuts worth 5.5 percent of gross domestic product in 2013 and 2014.
New Democracy leader Antonis Samaras said today he failed to forge agreement to form a new government. The attempt to form a government will now pass to Alexis Tsipras, the head of Syriza, the second biggest party, which has vowed to cancel the bailout terms.
‘Lack of Dovishness’
“It’s something that’s going to hang over the euro and prevent it from seeing any material recovery over the course of this week,” said Kathy Lien, director of currency research with online-trading firm GFT Forex in New York. “For the European Central Bank, this is going to be yet another reason for them to consider their lack of dovishness.”
Measures aimed at stemming Europe’s sovereign-debt crisis have driven economies from the Netherlands to Spain back into recession, emboldening politicians campaigning for growth.
The ECB kept its main refinancing rate at 1 percent after a meeting last week. While it still expects a gradual economic recovery this year, the outlook has become “more uncertain,” President Mario Draghi said.
“The election results in France aren’t unexpected, but they certainly put that element of caution into the market because of Hollande winning and some of the principles he stands for,” said Carl Forcheski, a director on the corporate currency sales desk at Societe Generale SA in New York. “The euro being down there around $1.30 and trading below it today is certainly reflective of the caution and the unease that the market has at the moment.”
The common currency needs to close below $1.30 to confirm a resumption of its bear trend, MacNeil Curry, head of foreign- exchange and interest-rates technical strategy at Bank of America Corp. in New York, wrote in a note to clients.
With a daily close below that level, the euro could ultimately drop to $1.2520, a level not seen since July 2010, Curry wrote.
The euro has declined 0.2 percent over the past month, according to Bloomberg Correlation-Weighted Indexes tracking 10 developed-nation currencies. The dollar has risen 0.2 percent and the yen has advanced 2.6 percent, the indexes show.
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