Euro Drops to Two-Month Low After Ministers Delay Aid to Greece

Euro Weakens as Market News Says ECB Is in No Hurry to Buy Bonds
The euro dropped 0.3 percent to $1.2734 at 9:37 a.m. London time, the lowest level since Sept. 7. Photographer: Kiyoshi Ota/Bloomberg

The euro fell to a two-month low versus the dollar after European Union finance ministers said they will delay for “weeks” the decision to give Greece its next round of aid.

The single currency declined as European Central Bank President Mario Draghi said economic growth was expected to remain weak. The yen gained against all of its main peers as investors sought safer assets amid concern re-elected U.S. President Barack Obama will struggle to avert the fiscal cliff. South Africa’s rand tumbled as mining output fell the most in five months.

“You have a Greek political situation that looks more tenuous than it did 48 hours ago, and you have European ministers who will potentially hold off giving aid to them until later this month,” said Aroop Chatterjee, a currency strategist at Barclays Plc in New York. “It makes for increased market uncertainty, and the euro sold off as a result. We’ve not talked about Europe for a good two weeks -- it’s time to put it back on the radar.”

The euro dropped 0.2 percent to $1.2747 at 5 p.m. in New York after sliding to $1.2717, the lowest level since Sept. 7. The common currency fell 0.8 percent to 101.30 yen after sliding the same amount yesterday. The yen strengthened 0.7 percent to 79.47 per dollar.

Europe’s central bank left its benchmark interest rate at 0.75 percent at its policy meeting in Frankfurt today, as forecast by all except one of 63 economists surveyed by Bloomberg News.

Rand, Pound

The rand declined for a second day, retreating 1 percent to 8.7206 per dollar.

Mining production slumped 8.3 percent as strikes since August have disrupted operations. The data support calls for a central bank rate cut to stimulate growth, Nedbank Group Ltd. said.

The pound rose for a second day against the euro after the Bank of England said it would maintain its asset-purchase target at 375 billion pounds ($599 billion). The decision was predicted by 35 out of 45 economists in a Bloomberg survey.

The central bank completed its latest 50 billion pounds of bond purchases last week, and Deputy Governors Paul Tucker and Charles Bean have indicated asset purchases may no longer have the same impact on the economy as when first introduced in 2009.

The pound appreciated 0.2 percent to 79.76 pence per euro after strengthening 0.3 percent yesterday. Sterling was little changed at $1.5984.

Chinese Leadership

China’s yuan touched the top end of its permitted trading range for a fourth straight day on optimism a new generation of leaders will take more measures to stimulate growth in the world’s second-largest economy.

The yuan rose 0.01 percent to 6.2429 per dollar as of 10:24 a.m. in Shanghai, according to the China Foreign Exchange Trade System, exceeding the PBOC’s reference rate by the maximum 1 percent allowed. The daily fixing was set 0.01 percent higher at 6.3060 against the greenback.

“The main policy goals moving forward for the currency is for further stable Chinese yuan along with some mild appreciation,” Nick Chamie, the head of global foreign-exchange credit strategy at Royal Bank of Canada in Toronto said on Bloomberg Television’s “Lunch Money” with Dominic Chu. “This mild appreciation fits with the strategy of seeing the renminbi increase its international use.”

Greek Funds

Draghi said the central bank is essentially finished with its focus on Greece. Euro-area finance ministers may not make a decision on unlocking funds for Greece until late November as they await a full report on the country’s compliance with the terms of its bailout, a European Union official said.

The common currency rallied in August and September amid speculation ECB bond purchases would cap borrowing costs for nations such as Spain and Italy and help contain the debt crisis.

“Draghi sort of hinted at rate cuts,” said Geoffrey Yu, a strategist at UBS AG in London. “He pointed to the lack of inflationary pressures, the bond-purchase program not activated and all of the economic stuff was to the downside, so I think it was pretty clear. We still have a longer-term forecast of $1.15” per euro by 2014, he said.

The franc rose 0.1 percent against the euro as the Swiss National Bank’s Fritz Zurbruegg said the currency’s ceiling against the euro is “effective.”

The central bank is controlling volumes place on markets and is looking at new asset classes and different currencies outside the euro in both advanced and developed nations, he said at an event in Geneva today.

Fiscal Cliff

The yen extended gains against the dollar as demand for the safety of Japan’s currency was boosted by speculation U.S. lawmakers will struggle to avert the looming fiscal cliff, the more-than $600 billion in tax increases and spending cuts set to be implemented in 2013 unless Congress acts to lower the budget deficit.

Two-year Treasury yields declined for a second day, falling to 0.258 percent, shrinking the excess yield investors receive for purchasing two-year U.S. securities versus Japanese bonds to the least since Oct. 17. That damps the appeal of dollar-denominated debt versus yen-based securities as investors seek safe haven assets.

The euro has fallen 0.8 percent over the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The yen dropped 1.3 percent, while the dollar gained 0.4 percent.

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