Euro Falls Versus Major Peers Amid Greece Concern; Rand Climbs

The euro fell versus 13 of its 16 most-traded peers as a meeting between German Chancellor Angela Merkel and Greek Prime Minister Antonis Samaras failed to reassure investors an accord is imminent on Greece’s next aid installment.

The yen rose against the 17-nation currency for a second day after the International Monetary Fund said the euro region’s economy will shrink more than forecast this year. European finance ministers met to discuss the bloc’s debt crisis. South Africa’s rand climbed from a 3 1/2 year low as a labor agreement was reached. Global stocks declined.

“There still doesn’t seem to be a consensus agreement on whether they want to extend the deadline for the Greek economic and fiscal reforms,” George Davis, chief technical analyst for fixed income and currency strategy in Toronto at Royal Bank of Canada, said in a telephone interview. “The equity markets aren’t doing very well, certainly a risk-off tone. That’s just compounding things.”

The euro dropped 0.7 percent to 100.83 yen at 5 p.m. in New York. It closed yesterday below its 200-day moving average, 101.77 yen, for the first time in three days. The shared currency weakened 0.6 percent to $1.2885. The yen appreciated 0.1 percent to 78.26 per dollar.

The Standard & Poor’s 500 Index retreated 1 percent, and the MSCI World Index also fell 1 percent.

Investors should remain bullish on the dollar because issues within the U.S. economy pale in comparison with those in Europe and Australia, John Taylor of FX Concepts LLC said.

‘Much Better’

“It’s a good short-term and long-term play,” New York- based Taylor, founder of the currency hedge fund, said in an interview on Bloomberg Television’s “In the Loop” with Deirdre Bolton. “The U.S. economy is looking much better than the other economies of the world. Europe has a possibility of a bad nick with the Greek situation.”

The dollar is in a “box” between the important technical level of $1.29 per euro and downtrend levels of $1.3050 to $1.31, Taylor said. The greenback will see a “significant” move after it breaks out of the range, he said. A closing price below $1.29 would be a “very bad” technical signal, he said.

Implied volatility among major currencies, which signals the expected pace of price swings, was 7.7 percent, almost the least since 2007. Lower volatility makes investments in currencies with higher key lending rates more attractive because the risk in such trades is that market moves will erase profit. The five-year average is 12.4 percent.

Maintained Pressure

The euro extended losses after Merkel and Samaras met in Athens. She maintained pressure on Greece to meet austerity pledges, while proclaiming her desire to keep the country in the euro. Merkel told reporters at a news conference that while “a lot has been done, much remains to be done.”

Samaras wants a two-year extension until 2016 for the 13.5 billion euros ($17.4 billion) of austerity measures now under discussion, saying a country facing a sixth year of recession in 2013 can’t bear faster austerity. The debt crisis began in Greece three years ago.

The Greek government has been in talks with the so-called troika of the European Commission, European Central Bank and International Monetary Fund for more than two months over the package, which is key to unlocking the next 31 billion euros from two rescue packages totaling 240 billion euros. The talks were set to resume this week.

“Merkel’s visit is perhaps rekindling the notion that Greece still has further to go on the austerity front,” Mazen Issa, Canada macro strategist at Toronto-Dominion Bank’s TD Securities, said in a phone interview. “There seems to be some sort of a general consensus among the European leaders that there may be more bailout measures coming for Greece.”

Rand Gains

South Africa’s rand rallied against all of its 16 most- traded peers after the nation’s Road Freight Employers Association said three unions with 15,000 workers agreed to end their strike. The currency had tumbled yesterday versus all of its major counterparts amid stoppages in the country’s mining and transportation industries.

The rand climbed 1.6 percent to 8.7549 per dollar, snapping a four-day drop. It fell to 8.9942 yesterday, the weakest level since April 27, 2009.

The euro region’s economy will contract 0.4 percent this year, 0.1 percentage point less than forecast in July, and grow 0.2 percent in 2013, versus 0.7 percent predicted three months ago, the Washington-based IMF said in a report.

“There’s getting to be more concern about growth in Europe,” Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc. in New York, said in a telephone interview.

The world economy will grow 3.3 percent this year, the slowest pace since the 2009 recession, compared with the July forecast of 3.5 percent, the IMF said. The risk of a steeper global slowdown is “alarmingly high,” the fund said.

Czech Koruna

The Czech koruna sank against most of its 31 major peers as an inflation report raised chances the central bank will seek to stimulate the economy further. The koruna depreciated 0.8 percent to 19.3857 to the dollar and touched 19.4582, the weakest level since Oct. 2.

The nation’s economy fell into recession for a third quarter, prompting Czech policy makers last month to cut the benchmark two-week rate to a record low of 0.25 percent. The central bank added that measures to weaken the currency may be used to loosen monetary conditions further. The report today showed inflation remained below the bank’s target.

The Swiss currency weakened against most major peers after State Street Corp. (STT) and Bank of New York Mellon Corp. (BK) said they will charge depositors to hold Danish krone and francs as customers seek refuge from the crisis-stricken euro.

Negative Rate

State Street will apply a negative interest rate of 0.75 percent annually to krone deposits starting Nov. 1, with a separate charge for francs, according to a note to clients last week. That means money managers, insurance companies and pension funds must pay the bank to hold their cash.

The franc slid to a three-week low of 1.2143 per euro before trading at 1.2115. It dropped 0.7 percent to 94.02 centimes per dollar.

The Swiss currency lost 3.1 percent in the past six months, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro fell 2.2 percent, while the yen gained 3 percent and the dollar fell 0.5 percent.

The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trade partners, rose 0.6 percent to 79.982.

To contact the reporters on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net; Joseph Ciolli in New York at jciolli@bloomberg.net

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

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