Euro Rises as Greek Pro-Bailout Party Leads Opinion Polls

Euro Set for Biggest Weekly Drop This Year on Growth Concerns
The euro is headed for its biggest weekly decline this year as signs that Europe’s debt crisis is damping growth curbed demand for the currency. Photographer: Simon Dawson/Bloomberg

The euro rose against the dollar from the weakest level since July 2010 as polls showed Greece’s pro-bailout parties gaining ground, easing concern the nation will exit the currency bloc.

The Dollar Index fell for the first time in five days as demand for higher-yielding assets boosted stocks. Japan’s yen snapped a two-day decline against the dollar after minutes of the Bank of Japan’s April meeting damped speculation policy makers will increase monetary easing to achieve a 1 percent inflation goal.

“It’s a momentary respite” for the euro, said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp. in London. “There hasn’t been any positive news other than these polls. It’s a watch-and-wait market.”

The euro strengthened 0.2 percent to $1.2541 at 5 p.m. London time, after climbing as much as 0.9 percent. It dropped to $1.2496 on May 25, the weakest level since July 6, 2010. Europe’s shared currency was little changed at 99.67 yen. The dollar fell 0.3 percent to 79.47 yen

The 17-member shared currency has depreciated more than 5 percent versus the greenback in May, poised for the biggest monthly slump since September after inconclusive Greek elections on May 6 sparked concern the nation may exit the bloc. The euro has slid 3.3 percent this year.

U.S. financial markets are shut today for a holiday. The Stoxx Europe 600 Index of shares was little changed.

Greek Polls

Greece’s New Democracy party, which supports the plan negotiated by the government with international lenders, ranked first in all six opinion polls published on May 26 in campaigning for the June 17 general election. It led by as much as 5.7 percentage points over Syriza, the main party opposed to implementing the terms of financial aid packages, according to a poll by Kapa Research SA for To Vima newspaper.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, fell 0.2 percent to 82.215.

Gains in the euro were tempered before reports forecast to show the debt crisis is hurting the region’s economic growth.

Consumer confidence in the euro area was at minus 19.3 in May, from minus 19.9 in April, according to a Bloomberg News survey before the final reading is released on May 30. The unemployment rate climbed to 11 percent in April, the highest in data compiled by Bloomberg going back to 1990, economist forecasts in a separate survey showed before the June 1 report.

‘Base Case’

“The base case is that it’s on track for about $1.20, $1.21 or so,” Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney, said about the euro today in an interview with Bloomberg Television. “That’s pretty much just based on the deceleration in the European economy.”

Spain is considering injecting debt issued by the government or its bank-rescue fund instead of cash into the Bankia group, using a mechanism that would free it from raising the money from investors. The government hasn’t made a decision on whether to use its debt to recapitalize the nationalized lender and will decide in two or three months, a spokesman for the Economy Ministry, who asked not to be named in line with its policy, said in a phone interview today.

Until now, to pay for bank bailouts, the state would sell debt in the market through its bank rescue fund and use the cash to aid banks. A jump in yields has made debt sales more difficult and expensive, El Pais reported yesterday, without citing anyone.

This type of step “may generate more worry in markets,” Emma Lawson, a currency strategist at National Australia Bank Ltd. in Sydney, wrote in a research note today.

Spanish Yields

Spain’s 10-year bond yield climbed 16 basis points, or 0.16 percentage point, to 6.42 percent after rising to this year’s high of 6.51 percent on May 16. Standard & Poor’s cut the nation’s credit rating on April 26 to BBB+ from A, saying there is an increasing likelihood the government will need to provide further fiscal support to the banking sector.

Hedge funds and other large speculators increased wagers the euro will decline versus the dollar to 195,361 in the period ended May 22, the most on record going back to 1999, according to the Washington-based Commodity Futures Trading Commission.

Lloyd’s of London Ltd. is prepared for a collapse of the European single currency that may be triggered if Greece leaves the euro, The Sunday Telegraph said, citing an interview with Chief Executive Officer Richard Ward.

Lloyd’s has a contingency plan to switch from euro underwriting to multi-currency settlement if Greece returns to the drachma, the newspaper said.

Fibonacci Charts

The euro is likely to extend losses against the yen after dropping below the 76.4 percent Fibonacci retracement of its advance from the January low and the March high, Bank of Tokyo-Mitsubishi UFJ Ltd. said in a report today. The common currency may decline to 97.04 yen, the January low, the bank said.

Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a new high or low.

BOJ board members said they need to avoid any “misunderstanding” that the central bank would continue to increase the size of its asset-purchase program in an automatic manner, according to the minutes released today. The BOJ on April 27 boosted the amount of government debt it plans to buy for the period through June 2013.

“It looks like the BOJ is taking a somewhat less aggressive stance toward its easing measures,” said Daisuke Karakama, a market economist in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan’s third-largest banking group by market value. “That’s leading to a bit of buying in the yen.”

Swiss Franc

The Swiss franc weakened against 12 of 16 major peers tracked by Bloomberg after Swiss National Bank President Thomas Jordan said controls on capital inflows are among measures being considered by a government-led panel to stop the franc from strengthening if the euro-area debt crisis escalates.

“The working group focuses mainly on instruments to combat the franc strength based on a joint approach of the government and the central bank,” Jordan told the SonntagsZeitung newspaper in an interview published yesterday. “We also need to be prepared for the possibility of the currency union collapsing, even though I don’t expect it.” SNB spokesman Walter Meier confirmed Jordan’s remarks to the newspaper.

The franc weakened 0.1 percent against the euro to 1.20191. It dropped the most, or 0.9 percent, versus the New Zealand dollar and the South Korean won.

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