The euro dropped to its lowest level in almost four months against the dollar as a leadership vacuum in Greece prompted European officials to weigh prospects for the currency union’s first departure of a member state.
The 17-nation currency slid for a second day versus the yen as Moody’s Investors Service cut the credit ratings of 26 Italian banks. The Dollar Index (DXY) rose for an 11th day and the pound climbed to the highest versus the euro since 2008 as investors sought haven. Australia’s currency fell below parity with the greenback for the first time this year, and Brazil’s real weakened to 2 per dollar for the first time since 2009.
“The problem is that Europe has a lot of flashpoints right now, and Greece is only one of them,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. “The Greek people want to stay inside the euro zone, but the government wants to renegotiate the fiscal pact.”
The euro fell 0.7 percent to $1.2823 at 5 p.m. in New York after sliding to $1.2821, the weakest level since Jan. 18. The currency declined 0.8 percent to 102.39 yen and reached 102.23, the lowest since Feb. 16. The yen gained 0.1 percent to 79.85 per dollar.
The Italian banks downgraded included Unicredit SpA and Intesa Sanpaolo SpA. Moody’s cited weakened earnings and the country’s economic prospects.
Dollar Index, Treasuries
The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, gained 0.5 percent to 80.693. U.S. 10-year note yields slid to as low as 1.76 percent, the least since Oct. 4, as investors sought haven.
Alexis Tsipras, who heads Greece’s anti-bailout Syriza party, wouldn’t attend a meeting called by President Karolos Papoulias today, the Athens-based party said in a statement. Syriza rejected a unity government last week following inconclusive elections on May 6. Greece may face another vote unless leaders can agree on a new coalition.
“This puts the whole election back in doubt and suggests that we’re going to have a second election sometime in the middle of June,” said Boris Schlossberg, director of research at the online currency trader GFT Forex in New York. “We may come to a fiscal crisis point before we have a political resolution. All of that is pressing the euro down right now.”
The euro region’s finance ministers met today in Brussels. Luxembourg’s Jean-Claude Juncker, who heads the group, said a Greek exit from the currency union wasn’t discussed and that euro nations remain committed to Greece.
The euro also weakened after the EU’s statistics office said industrial production in the region contracted in March.
Brown Brothers Harriman’s Chandler said he expects the euro to weaken to $1.27 by June and $1.24 in the third quarter.
Sterling rallied against all of its 16 most-traded peers as investors sought an alternative to the shared currency. The pound gained as much as 0.9 percent to 79.63 pence per euro, the most since November 2008, before trading at 79.69 pence. It fell 0.1 percent to $1.6092.
Europe’s shared currency dropped 4 percent in the past six months, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar rose 2 percent, and the yen lost 2 percent.
Australia’s dollar dropped below parity with its U.S. counterpart for the first time since Dec. 20 as appetite for higher-yielding currencies shrank. The Aussie declined 0.6 percent to 99.58 U.S. cents.
The Standard & Poor’s 500 Index lost 1.1 percent, and the S&P GSCI Index of 24 raw materials also sank 1.1 percent.
The Brazilian, Swedish and South African currencies were among the biggest losers against the greenback.
Sweden’s krona slid as much as 1.4 percent to 7.0538 per dollar, the weakest since November 2010, before trading at 7.0532. South Africa’s rand dropped 1.4 percent to 8.2082, and reached 8.2100, the least since Jan. 13.
Brazil’s real weakened as much as 2 percent to 2.0062 per dollar, the least since July 2009, before trading at 1.9962.
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