Euro Falls Versus Dollar Before Summit; Yen Rises on BOJ

The euro fell to its weakest level against the dollar since July 2010 on speculation a summit of European Union leaders will provide no new measures to stem the sovereign-debt crisis.

The shared currency extended losses after dropping below 100 yen for the first time since February and weakening to less than $1.26, price levels where traders who follow technical analysis said sell orders were clustered. The yen climbed versus all its major peers except Brazil’s real after the Bank of Japan (8301) left its asset-purchase fund unchanged. The real rose against all its major counterparts after the central bank sold swaps to stem the currency’s decline.

“Risk appetite itself has traced its undulation to the movements in the euro,” said Ravi Bharadwaj, a market analyst in Washington at Western Union Co. (WU)’s Western Union Business Solutions unit. “It’s going to be difficult to estimate the real policy action that will come out of these meetings, and the tone of the rhetoric is going to be key for the markets to gauge where currencies should go.”

The euro fell 0.8 percent to $1.2582 at 5 p.m. New York time, after touching $1.2545, the least since July 13, 2010. It was 1.4 percent weaker at 100 yen, after falling to 99.54, the least since Feb. 1 and approaching the lowest since December 2000. The yen appreciated 0.6 percent to 79.47 per dollar.

Financial turmoil in the euro bloc will come up at the meeting in Brussels only “at the very end,” European Council President Herman Van Rompuy said in a letter before a gathering of EU officials.

Brazil Auctions

Brazil’s real rose for the first time in five days, gaining 2.8 percent to 2.0326 per dollar. The central bank also sold swaps twice yesterday in a bid to slow declines as the currency headed to the weakest level since May 2009. The real has fallen 8.6 percent this year, leading declines among 16 major currencies tracked by Bloomberg.

The real extended gains after Brazil completely removed a tax on currency derivatives for exporters, Alexandre Andrade, an official at the tax agency said. On March 16, the government had exempted exporters from the tax as long as their exposure to currency derivatives, used to hedge against exchange-rate fluctuations, didn’t exceed 1.2 times the value of their previous year’s exports.

Canada’s currency fell for a second day against the dollar as stocks and commodities declined, even as the nation’s retail sales rose to a record in March. The so-called loonie dropped 0.5 percent to C$1.0252.

‘Not Good Enough’

“The Canadian dollar is really reliant on domestic data to keep it supported at the moment, and these numbers are OK,” Shaun Osborne, chief currency strategist at Toronto-Dominion Bank (TD), said of the retail-sales results. “But they’re just not good enough to push the currency any higher.”

The MSCI World Index sank 1 percent and the Standard & Poor’s GSCI Index of 24 raw materials declined 1.9 percent.

South Africa’s rand fell against most of its 16 major counterparts after inflation accelerated less than economists’ estimates in April, fueling speculation the central bank will leave interest rates unchanged this year.

The rand declined 0.7 percent to 8.3853 per dollar.

The yen snapped a two-day drop against the dollar after slipping earlier this week on bets the central bank would decide to boost stimulus at its policy meeting.

The BOJ kept its asset-purchase fund at 40 trillion yen today, after expanding it by 10 trillion yen last month. The central bank also left a credit-lending program at 30 trillion yen, it said in a statement in Tokyo today. The policy board kept the key overnight lending rate between zero and 0.1 percent.

‘Shock Move Up’

“The risk was the BOJ was going to do something, markets had to price in the probability of a surprise easing, so a shock move up in the yen,” said Greg Anderson, the North American head of Group of 10 currency strategy at Citigroup Inc. in New York. “Now that risk is gone, so people can take off their hedges, and we’ve seen dollar-yen dribble back down.”

The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, rose as much as 0.9 percent to 82.221, the highest level since Sept. 10, 2010.

The dollar has gained 4.5 percent over the past month as investors sought the safest assets amid a deepening financial crisis, Bloomberg Correlation-Weighted Indexes show. The yen, the best performer, added 7.2 percent, while the euro declined 0.9 percent, according to the indexes, which track 10 developed- nation currencies.

Brussels Summit

The Brussels gathering takes place as Greece prepares to hold new elections on June 17 after an anti-bailout party surged to second place in balloting on May 6, boosting speculation that the country may exit the currency bloc.

“We know the summit is not going to resolve anything and it will be hard to find particularly positive headlines,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York. “We’ve seen a lot of the reaction to the meeting has come in the form of anticipation of nothing.”

To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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