Euro Falls Toward One-Week Low Versus Dollar Before ECB

The euro fell toward a one-week low versus the dollar as European Central Bank policy makers prepared to meet tomorrow amid political and banking turmoil that threatens to renew the region’s sovereign-debt crisis.

The 17-nation currency slid against most of its 16 major peers as Spain’s premier resisted opposition calls to resign and Italy’s Banca Monte dei Paschi di Siena SpA faces criminal probes over losses it hid in 2008 and 2009 using derivatives. The euro declined as Greece’s finance minister said its strength is a concern. The yen weakened to a 32-month low against the dollar on speculation Japan will select a new central-bank chief committed to boosting monetary easing.

“The euro is reacting to all the political issues coming out of Italy and Spain,” Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc. in New York, said in a telephone interview. “We’ve seen tensions in the euro zone decrease meaningfully so far this year, so it’s normal that at some point investors would realize things are better, but still not that good.”

The euro fell 0.4 percent to $1.3523 at 5 p.m. New York time, after declining to $1.3459 yesterday, the lowest since Jan. 29. It slipped 0.4 percent to 126.63 yen after climbing to 127.71, the strongest since April 2010. The yen was little changed at 93.64 per dollar after depreciating to 94.06, the weakest level since May 2010.

The shared currency may decline as low as $1.3180, its weakest level since Jan. 10, if it fails to break through a key level of resistance at $1.3711 to $1.3727, Cilline Bain, a London-based technical analyst at Credit Suisse, wrote in a client note. It has support at $1.3310, he said.

Koruna, Zloty

The Czech koruna gained 0.7 percent to the dollar as the central bank kept interest rates at effectively zero for a second meeting. The koruna appreciated for a second day to 18.7530.

Poland’s currency declined as much as 0.9 percent against the greenback as monetary policy makers at Narodowy Bank Polski cut its main interest rate for a fourth month to avert the biggest economic slowdown in more than a decade. The zloty weakened to 3.0896.

Australia’s dollar declined against most of its major peers as retail sales fell 0.2 percent in December, adding to signs the Reserve Bank may cut interest rates next month. The Aussie slid 0.7 percent to $1.0320, after dropping to $1.0297, the lowest since Nov. 16. It dropped 0.7 percent to 96.63 yen.

Rajoy Allegations

Greece’s Yannis Stournaras said on Bloomberg Television that the euro’s strength is a concern even as its current level shows a return in confidence in the currency. French President Francois Hollande yesterday called for government leaders to steer the euro’s exchange rate, a suggestion rejected by the German government today, while Luxembourg Finance Minister Luc Frieden said the level doesn’t concern him at present.

“There is a significant risk of something happening at the ECB meeting, and that’s why the market will sell ahead of it,” Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in New York, said in a telephone interview. “We’ve seen the market being whipsawed, up and down, on the euro-dollar side.”

Spain’s Prime Minister Mariano Rajoy faced calls to step down amid contested reports of corruption in his party. He has imposed the harshest austerity measures in Spain’s democratic history to curb the budget deficit and lower borrowing costs.

Italian Yields

Monte Paschi, the world’s oldest lender, said on Jan. 17 it may be forced to restate earnings after Bloomberg News reported that it used derivatives to obscure losses. Accounting irregularities also led to a criminal investigation targeting former management. The bank’s board was to meet in Siena to discuss the impact on its balance sheet.

Italian 10-year government bond yields climbed 25 basis points, or 0.25 percentage point, to 4.58 percent this week amid concern about the possible success of former premier Silvio Berlusconi at this month’s parliamentary election.

Berlusconi, who is appealing a four-year sentence for tax fraud while standing trial in an unrelated case on charges of paying a minor for sex and abusing his office, has narrowed the gap to the bloc led by Democratic Party leader Pier Luigi Bersani to within the margin of error of an opinion poll for the first time before Feb. 24-25 elections.

The euro has strengthened 2.9 percent this year, the biggest advance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar increased 0.1 percent and the yen tumbled 8 percent, the largest decline.

Japan’s Prime Minister Shinzo Abe will present his candidate for the next BOJ governor to opposition parties after a visit to the U.S. this month, public broadcaster NHK reported today, without saying where it got the information. Abe’s government has defined ending deflation as central to efforts to revive the world’s third-biggest economy.

Before it's here, it's on the Bloomberg Terminal.