Euro Falls to Record Low Versus Franc on Greek Bailout Concern

The euro slid to a record low versus the Swiss franc as concern increased that European leaders may not be able to find common ground on a Greek bailout.

European Central Bank President Jean-Claude Trichet and German Finance Minister Wolfgang Schaeuble are at odds about whether Greek bondholders should be compelled to incur losses in the nation’s second bailout in 14 months. The dollar dropped against most of its counterparts before a report this week forecast to show U.S. retail sales declined in May. New Zealand’s dollar fell after its second-biggest city was struck by aftershocks of the February earthquake.

“The fact that the euro can’t really get a break against the Swissie tells you that story still lurks in the background,” said Alan Ruskin, global head of Group-of-10 foreign-exchange strategy at Deutsche Bank AG in New York. “This risk bounce is just consolidation. In the short term, there’s enough there to overhang the market for there to be a slight bias toward risk-off.”

The shared currency weakened 0.8 percent to a record low 1.20043 versus the franc, before trading at 1.20340 at 11:27 a.m. in New York. The euro fell as much as 0.3 percent to $1.43, the weakest intraday level since May 31, before trading at $1.4376.

The Dollar Index, which measures the greenback against the currencies of its six major trade partners, fell 0.2 percent to 74.660.

The yen strengthened 0.2 percent to 80.20 per dollar after earlier touching 80.69, the lowest level since June 3.

Juncker Comments

Luxembourg’s Prime Minister Jean-Claude Juncker, who leads the group of euro-area finance ministers, said in an interview on Radio Berlin-Brandenburg June 11 that any bailout for Greece must include “voluntary” investor participation. Juncker is trying to bridge the gap between Germany’s Schaeuble, who wants Greek bondholders to accept longer maturities of up to seven years on the debt, and Trichet, who said imposing losses on creditors would be akin to a default.

“We seem to be swaying from one side to the other side and the uncertainty is clearly increased and that’s never good for markets,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto. “We’re seeing ongoing debate in terms of all the overhanging questions that are there for the bond market, Greece and the euro.”

European officials are racing to find a plan to stem Greece’s debt crisis by June 24 while sharing the cost of an added rescue with bondholders. Trichet signaled on June 9 that the central bank may raise interest rates in July while reiterating that inflation will fall below its 2 percent limit next year.

Portugal Yields

Portugal’s 10-year bond yield rose to a euro-era record while two-year German yields reached a near-three month low as investors demanded the euro region’s safest assets.

The Portuguese 10-year yield reached 10.72 percent, the highest ever, and Germany’s two-year yield touched 1.508 percent, the lowest since March 17.

Retail sales in the U.S. fell 0.5 percent in May, the first drop since June, according to the median estimate of 63 economists in a Bloomberg News survey. The Commerce Department will release the report June 14.

Federal Reserve Bank of Richmond President Jeffrey Lacker said recent U.S. economic data have prompted him to reconsider his forecast for growth.

The data are “causing us to rethink our outlook for growth,” Lacker said to reporters after a speech today in Roanoke, Virginia. “We could be stuck below trend for some time,” he said.

The yen weakened versus most of its major peers after a report showed Japan’s factory orders declined 3.3 percent in April from March, when they rose 1 percent, the Cabinet Office said today.

BOJ Meets

Two out of 14 economists surveyed by Bloomberg News said Bank of Japan policy makers meeting today and tomorrow may decide to expand asset purchases, four said it may do so in August, and all but one said the next BOJ move will be to ease.

New Zealand’s dollar weakened after quakes with magnitudes of 5.2 and 6.0 struck near Christchurch, according to the U.S. Geological Survey. In February, the city was devastated by a magnitude-6.3 temblor that killed more than 180 people and closed the central business district.

The kiwi slumped 1.1 percent to 81.22 U.S. cents, before trading at 81.40 cents.

Sweden’s krona is joining the franc as a favored currency for traders seeking to profit from Germany’s economic expansion while avoiding the debt crisis roiling Europe.

The krona may climb to its highest level in more than 10 years against the euro as the fastest growth in Europe spurs the Riksbank to keep raising interest rates, according to data compiled by Bloomberg. It’s a cheaper way to participate in German growth than the traditional haven, the Swiss franc, which is the most overvalued currency against the euro and the dollar as measured by the relative cost of goods and services.

The Swedish currency reached its weakest level against the euro this year, reaching 9.1339 per euro, the weakest since Dec. 14, before trading at 9.1137.