By Paul Dobson and Yoshiaki Nohara
Feb. 9 (Bloomberg) -- The yen and dollar fell on speculation European officials meeting this week will agree to assist Greece in tackling its budget deficit, reducing demand for the currencies as a refuge.
The yen slid the most against the euro since Jan. 6 after a European Central Bank spokeswoman said President Jean-Claude Trichet will leave a meeting in Sydney early for a European Union leaders’ summit. Australia’s dollar gained versus its U.S. counterpart after central bank Governor Glenn Stevens warned that keeping interest rates too low for too long may hamper efforts by policy makers to halt future asset bubbles forming.
“There’s increased speculation that support measures will be announced for Greece this week and that’s triggering a relief rally,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “It’s put on a degree of support for risk assets because it would ease near-term sovereign-default fears.”
The euro rose to $1.3701 as of 6:25 a.m. in New York from $1.3649 yesterday. It advanced to 122.71 yen from 121.81 yen. Japan’s currency declined to 89.55 per dollar from 89.26.
Europe’s single currency fell to $1.3586 on Feb. 5, the lowest level since May 20, as investors bet sovereign risk crises in nations such as Greece will force policy makers to keep interest rates at record lows for longer. Credit-default swaps on the debt of Greece, Spain and Portugal rose to all-time highs last week.
Overshadow Summit
Trichet will today depart a symposium marking the Reserve Bank of Australia’s 50th anniversary to attend this week’s gathering of EU leaders, ECB spokeswoman Regina Schueller said.
EU President Herman Van Rompuy said yesterday in a letter sent to nations’ leaders that the summit will discuss “some aspects of the present economic situation,” without making a direct reference to Greece’s financial crisis. The focus of the meeting will be long-term economic strategy, he said.
Greek Finance Minister George Papaconstantinou said yesterday in a Bloomberg Television interview in Athens that calling for outside aid would be “the worst possible signal which we could send out.”
The euro may drop below 120 yen for the first time in a year as labor unrest in Greece stifles government efforts to tackle the widening budget deficit, said Hideki Hayashi, a global economist in Tokyo at Mizuho Securities Co.
The currency looks like “the sickest dog in the litter,” Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney, wrote in an investor note.
‘Necessary Framework’
Investors would be wrong to bet on a failure of the single currency because the EU has the commitment to manage the challenges of sovereign debt, European Commission President Jose Barroso told the European Parliament today in Strasbourg, France.
“The euro will continue to constitute a major tool for our development,” Barroso said. “Those who think it can be put into question must realize we will stick to our course. The European Union has the necessary framework to address all challenges that can appear.”
Australia’s dollar rose against the greenback and yen after Stevens signaled he may increase borrowing costs, and as gains in Asian stocks revived demand for higher-yielding assets.
“If the root problem is simply that interest rates are too low, experience suggests that efforts to handle the problem by regulation aimed at constraining balance-sheet growth won’t work for long,” Stevens said in paper delivered at the Sydney meeting of central bankers.
The MSCI Asia Pacific Index and the Dow Jones Stoxx 600 Index of European shares added as much as 0.4 percent.
China Stocks
“Asian stock markets, especially Chinese indexes, may act as a stabilizer, which is positive for the Aussie dollar,” said Hideo Shimomura, who helps oversee the equivalent of $56 billion as chief fund investor in Tokyo at Mitsubishi UFJ Asset Management Co. “In the long run, the Aussie is OK because Australia should hike rates a couple of times.”
Australia’s currency rose 0.6 percent to 86.96 U.S. cents, and 9 percent to 77.89 yen.
To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Paul Dobson in London at pdobson2@bloomberg.net
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