Euro Weakens to Decade Low Versus Yen on European Debt Concerns

The euro fell to a decade low against the yen on speculation European policy makers are struggling to resolve the debt crisis as economic growth slows, damping demand for the region’s assets.

The 17-nation currency slid versus most of its major peers on uncertainty over whether Greece will get another round of funding to avoid default. The dollar and yen rose as U.S. Treasury Secretary Timothy F. Geithner said failure to address the debt crisis may lead to bank runs. The euro rose from an eight-month low versus the dollar after a German report showed business confidence fell less than economists forecast. New Zealand’s dollar reached a six-month low against the greenback after a report showed the trade deficit widened.

“The lack of a coordinated policy response to the debt crisis is pushing the euro down,” said Derek Halpenny, London-based European head of currency research at Bank of Tokyo-Mitsubishi UFJ Ltd. “The risk of contagion remains very high and the failure to deal with Greece means that the euro can only go lower.”

The euro dropped 0.2 percent to 103.20 yen at 7:14 a.m. in New York after declining to 101.94, the weakest level since June 2001. The shared currency was little changed at $1.3527 after sliding to $1.3363, the lowest since Jan. 18. The yen gained 0.4 percent to 76.29 per dollar.

Finance ministers and central bankers who held weekend talks in Washington, where the International Monetary Fund and World Bank had their annual meetings, urged European officials to intensify efforts to contain their 18-month debt crisis as Greece teetered on the edge of default.

‘Cascading Default’

Geithner called on governments to unite with the European Central Bank to boost the capacity of their bailout fund, saying failure to act threatened “cascading default, bank runs and catastrophic risk.” Former Treasury Secretary Lawrence Summers said he has been to 20 years of IMF gatherings, and “there’s not been a prior meeting at which matters have had more gravity and at which I’ve been more concerned about the future of the global economy.”

“There needs to be a global coordinated plan put in place to address the debt crisis and the capitalization of banks to re-instill faith in the world’s financial system,” Bank of Tokyo’s Halpenny said. “Without that, Europe will keep coming up short.” The euro may weaken to as low as $1.25 by year-end, he said.

Greece on Sept. 21 became the latest country to authorize expanded powers for the European Financial Stability Facility agreed to in July. The countries yet to ratify are Austria, Cyprus, Estonia, Finland, Germany, Ireland, Malta, Netherlands, Portugal, Slovakia and Slovenia. German lawmakers will vote on changes to the facility on Sept. 29. The enhanced powers can only take effect when all 17 euro nations have ratified them.

‘Coming Up Short’

Euro-region finance ministers won’t be in a position to decide on the disbursement of the next tranche of aid to Greece when they meet on Oct. 3 because a report by the IMF, ECB and European Commission has been delayed, German Deputy Finance Minister Joerg Asmussen said yesterday.

“The euro has hit new lows and unless there’s a significant policy response to deal with the crisis we think it will continue to trade weak,” said Paul Robson, a senior foreign-exchange strategist at Royal Bank of Scotland Group Plc in London. “There’s still a lot of uncertainty in the market.”

The Ifo institute said its business climate index for Germany dropped to 107.5 from 108.7 in August. Economists forecast a decline to 106.5, according to a Bloomberg survey.

Yen, Dollar

The yen and dollar have gained almost 3 percent over the past week, the best performers among 10 developed-nation currencies, according to Bloomberg Correlation-Weighted Indexes. In the past three months the yen has gained 11 percent, the dollar has risen 4.6 percent and the euro lost 1.1 percent.

For all the concern about sovereign default in Europe, the euro remains above its average since being created almost 12 years ago, a sign that foreign-exchange traders see little chance of a collapse as officials step up efforts to keep the debt crisis from expanding.

At last week’s close of $1.35, the euro is 12 percent stronger than its average of $1.2024 since January 1999. While strategists have cut their forecasts for appreciation, they still see it rising to $1.43 by the end of 2012, based on the median of 35 estimates in a Bloomberg survey.

New Zealand’s dollar fell against the dollar after a report showed the trade deficit was wider than estimated, adding to signs of a slowdown in the South Pacific nation. The currency later reversed losses to be little changed.

Imports exceeded exports by NZ$641 million ($494 million) in August, Statistics New Zealand said. Economists forecast a NZ$321 million deficit.

“Risk will still be on the back foot -- markets will be very, very cautious,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington. “The kiwi is sitting right on a quite crucial support level. If it doesn’t hold, we’re looking at potentially a move lower.”

The New Zealand dollar traded at 77.75 U.S. cents after falling to 76.38 U.S. cents, weakest level since April 1.