Euro Weakens for Second Day as Greece’s Funding Concern Mounts

The euro fell for a second day against the dollar as investor concern about Greece’s future grew, with the European Central Bank said to be studying ways to rein in emergency financing to the nation’s lenders.

The 19-nation currency depreciated against most of its major peers as ECB staff proposed increasing constraints on banks when they borrow from the Bank of Greece, people with knowledge of the discussions said. German investor confidence unexpectedly fell for the first time in six months in April, suggesting the debacle is weighing on Europe’s largest economy.

“It’s mainly the fear around the Greek debt crisis” that’s driving the euro lower, Ralf Umlauf, head of floor research at Helaba Landesbank Hessen-Thueringen in Frankfurt, said by phone. “Speculation and rumors around this issue will put pressure on the euro.”

Umlauf said the currency may weaken toward its long-term support level at $1.05 within the next two weeks.

The euro fell 0.2 percent to $1.0713 as of 9:01 a.m. in New York, following a 0.6 percent decline on Monday. It was little changed at 127.96 yen.

The shared currency is trading near a 12-year low of $1.0458 set March 16, and is on track to decline for a 10th month against the dollar. Some analysts forecast the two currencies may reach parity this year.

Greek Discussions

While the measures to curtail the ECB’s Emergency Liquidity Assistance to Greek banks haven’t been formally discussed by the Governing Council, they may be considered if the nation fails to convince euro-area finance ministers it can reform its economy and secure bailout funds, one of the people with knowledge of the matter said.

“Developments with regards to Greece continue to deteriorate, which is increasing risk of default,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. “These negative headlines are weighing on the euro.”

Greece faces increasing pressure to come to an agreement with its creditors for more aid, without which it may run out of money as soon as next month. Euro-area finance ministers are due to meet Friday to discuss Greece’s proposals for the economic reforms that have been demanded in return for the final payments under its 2012 bailout.

The single currency has weakened 5.3 percent in the past three months against a basket of peers tracked by Bloomberg Correlation Weighted Indexes, the worst performance after the Swiss franc.

Debt Levels

Government debt in the euro area surged in 2014 to the highest levels since the introduction of the single currency, led by Greece, a report issued Tuesday showed. Italy’s debt mountain increased and remained the second-highest.

The ECB began its quantitative-easing stimulus plan last month, pledging to buy 60 billion euros ($64 billion) of public debt each month through September 2016 and sending bond yields tumbling below zero in countries from Germany to France.

ECB Vice President Vitor Constancio said Monday the central bank is convinced “there will be no Greek exit” and pointed out that the treaty behind the single currency “does not foresee that a country can be formally, legally expelled” from the bloc.

“Greece remains the major risk factor for the euro,” said Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley in London. Together with the ECB’s monetary policy and QE, that’s “set to keep the euro under pressure.”

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