Euro Weakens as Finance Ministers Rule Out Immediate Debt Steps

The euro dropped versus most of its major counterparts, reaching the lowest level in more than three weeks against the dollar, as European finance ministers ruled out immediate steps to tackle the region’s debt crisis.

The 17-nation currency fell for the first time in more than a week against the Swiss franc on speculation an attempt to restructure WestLB AG, the German state-owned bank bailed out during the financial crisis, is faltering. South Korea’s won was the best performer among major currencies as Japan’s gross domestic product fell less than forecast.

“It was a European-dominated news day, and the market is second-guessing the amount of optimism it had priced in to the euro,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “Germany’s WestLB is a big deal because it could be indicative of what we may be dealing with in banks across the euro zone.”

The euro fell 0.6 percent to 112.40 yen at 5 p.m. in New York, from 113.06 on Feb. 11. The shared currency depreciated 0.5 percent to $1.3489, from $1.3554, and touched $1.3428, the weakest level since Jan. 20. The yen gained 0.1 percent to 83.32 per dollar, from 83.43. The euro slid 0.8 percent to 1.3084 francs in its first decline since Feb. 3.

German Finance Minister Wolfgang Schaeuble told reporters today “stable” financial markets ease pressure for a boost in the Europe’s 440 billion-euro ($594 billion) rescue fund.

“The markets are so stable right now that it’s better not to unsettle them with superfluous discussions,” Schaeuble said before European finance ministers met in Brussels.

Permanent Mechanism

The officials emerged from today’s session without announcing immediate steps on the debt crisis. Luxembourg’s Jean-Claude Juncker, who leads the group of euro-area finance ministers, said at a press conference the lending capacity for the permanent stability mechanism to be established in 2013 will be 500 billion euros and will be regularly monitored. European leaders are scheduled to meet next month.

“They keep talking about the March summit, and that is where things are going to get done, so no one is expecting much,” said Win Thin, head of emerging-market strategy at Brown Brothers Harriman & Co. in New York.

South Korea’s won gained as Japan’s gross domestic product fell at an annual rate of 1.1 percent in the fourth quarter, compared with a median forecast of for a 2 percent drop in a Bloomberg News survey of 26 economists.

The won appreciated 0.5 percent against the dollar to 1,122.88, from 1,128.47. India’s rupee advanced 0.4 percent to 45.5050, from 45.6850.

Sterling Gains

The pound gained 0.7 percent to 84.10 pence per euro before a report tomorrow forecast to show inflation accelerated, reinforcing expectations the Bank of England will raise interest rates. Sterling rose 0.2 percent to $1.6039.

Chile’s peso gained for a fourth day after central bank President Jose De Gregorio said his priority was fighting inflation, rather than weakening the peso. The peso gained 0.7 percent to 469.45 per U.S. dollar. The central bank said last month it would buy $50 million a day to stem the peso’s gain.

The central bank probably will increase its benchmark interest rate by a quarter-percentage point to 3.5 percent on Feb. 17, according to the median forecast in a Bloomberg survey.

The euro declined earlier as Reuters, citing a person who attended a meeting about WestLB, reported a German committee failed yesterday to agree on a restructuring for the lender.

Not Just Periphery

“All of a sudden it looks like it’s not just Ireland and the periphery that’s having issues, it’s Germany as well, though it’s just one bank,” said David Watt, senior currency strategist at Royal Bank of Canada’s RBC Capital unit in Toronto. “People have this underlying sense that euro rallies are to be traded and we’re seeing that play out today.”

The euro has gained 0.9 percent this year in a basket of 10 developed-nation currencies, according to Bloomberg Correlation-Weighted Currency Indexes. The best performer has been the Swedish krona, which has appreciated 4 percent, and the worst has been the Swiss franc, which has lost 3.9 percent.

Enda Kenny, leader of Ireland’s largest opposition party, Fine Gael, said yesterday in an interview with the Dublin-based broadcaster RTE that senior bank bondholders should share the cost of bailing out the country’s financial system. He said a new government would seek to renegotiate details of the international bailout after national elections this month.

Greek government spokesman George Petalotis said in a statement on Feb. 12 that demands for asset sales to raise as much as 50 billion euros by 2015 to pay down debt were “unacceptable.”

The nation joined Italy last week in opposing annual numerical debt-reduction targets.

‘Not All Well’

“Any time you have that type of stuff running across the tape, the market takes that into consideration,” said Carl Forcheski, a director on the corporate currency sales desk at Societe Generale SA in New York. “They know that things are not all well in the euro land.”

Canada’s dollar advanced against the euro for a third day on speculation the Bank of Canada may raise interest rates sooner than the European Central Bank. The Canadian currency gained 0.3 percent to C$1.3342 per euro, from C$1.3386.

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