Euro Falls to One-Year Low on Concern Greek Crisis Spreading

The euro slumped to its weakest level since April 2009 against the dollar amid concern Greece’s debt crisis will spread, derailing the region’s economic recovery.

The 16-nation currency traded below $1.30 for a second day as German Chancellor Angela Merkel told lawmakers Europe is “at a crossroads” as governments assemble a Greek bailout. The pound gained against the euro and was little changed against the dollar as the U.K. entered its last day of campaigning before tomorrow’s election. The dollar advanced toward an eight-month high against the yen on optimism the U.S. economy will recover at a faster pace than Japan’s.

“The outlook for the euro remains bearish,” said Elsa Lignos, a strategist at Royal Bank of Canada Europe Ltd. in London. “It’s still an overvalued currency and that’s hard to justify given the internal problems in the euro zone.”

The euro fell to $1.2970 at 6:01 a.m. in New York, from $1.2987 yesterday, after dropping to $1.2935, the weakest level since April 2009. The currency was at 122.89 yen from 122.78 yen, after touching 122.30, the lowest since March 25.

The dollar climbed 0.2 percent to 1.1046 Swiss francs, after reaching 1.1075, the strongest since May 2009. The greenback bought 94.73 yen, from 94.54 yen. Financial markets were shut today in Japan for a holiday.

The euro stayed lower as a European Union report showed the region’s retail sales dropped in March from a year earlier, signaling the recovery from the worst recession since World War II may sputter amid the deepening sovereign-debt crisis. Sales fell 0.1 percent, after declining a revised 0.2 percent in February, the statistics office in Luxembourg said today.

‘Future of Europe’

The EU and International Monetary Fund’s 110 billion-euro ($143 billion) aid package for Greece is about “the future of Europe and the future of Germany,” Merkel told lawmakers in Berlin as she opened a debate on the program. European Central Bank council member Axel Weber said Greece’s fiscal crisis is threatening “grave contagion effects” in the euro area, justifying Germany’s contribution to the aid package.

So far, aid for Greece has failed to quell investor concern that the crisis will spread. Investors demanded 687 basis points more to hold 10-year Greek bonds instead of similar-maturity German bunds. The average in the five years through 2009 was 70 basis points. The spread between bunds and Portuguese 10-year bonds widened 21 basis points to 273 basis points.

“It’s hard to identify news or a factor that might lead to a change in sentiment toward the euro,” said Roberto Mialich, a senior global-currency strategist UniCredit SpA in Milan. “There’s no real incentive to buy the euro” and the currency may slide to $1.25 should it breach a key level between $1.2880 and $1.2890, Mialich said.

Stronger Dollar, Jobs

The dollar strengthened versus the yen before U.S. reports today that economists said will show companies added jobs in April and service industries expanded at the fastest pace in almost four years.

The Fed is likely to raise its benchmark interest rate to 0.75 percent from as low as zero by the end of 2010, while the Bank of Japan is expected to keep its overnight lending rate at 0.1 percent, according to Bloomberg News surveys.

U.S. companies hired 30,000 workers last month, after a 23,000 decline in March, a Bloomberg survey showed before the report from ADP Employer Services. The Institute for Supply Management’s index of non-manufacturing businesses, which make up almost 90 percent of the economy, rose to 56 in April from 55.4, another survey showed.

Asian Markets

Asian currencies slumped with stock markets, extending a decline that wiped out more than $1.1 trillion from the value of global equities yesterday. The MSCI World Index fell 0.2 percent.

The Philippine peso depreciated 0.8 percent to 45.02 per dollar, Malaysia’s ringgit dropped 0.6 percent to 3.2328 and the Singapore dollar lost 0.1 percent to S$1.3826. Onshore markets in South Korea and Thailand were closed for public holidays.

The pound gained 0.1 percent to $1.5156, after declining in the past three days. It gained for a third day against the euro, climbing 0.2 percent to 85.58 pence.

The currency is strengthening against its most-active counterparts and government bonds are rebounding as polls show David Cameron’s Conservative Party, which has pledged to make bigger cuts to the deficit than the ruling Labour Party, may come closest to winning tomorrow’s election.

Sterling has risen 3.2 percent against the Group of 10 currencies from this year’s low on March 10, after falling 7.4 percent in the previous six weeks, according to Bloomberg correlation-weighted indexes.

A ComRes Ltd. daily poll shows 37 percent of respondents planning to vote Conservative, 29 percent backing the ruling Labour Party and 26 percent endorsing the Liberal Democrats. That would give the Conservatives 294 seats, 32 short of a majority, ComRes said. A YouGov Plc survey gave 35 percent support to the Conservatives and 30 percent to Labour, up 2 points. The Liberal Democrats slipped 4 points to 24 percent.

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