Euro Near 3-Month Low Versus Pound on Greece Aid Plan Concern

By Yasuhiko Seki and Ron Harui

April 27 (Bloomberg) -- The euro traded near a three-month low against the pound on concern a European Union-led 45 billion euro ($60.2 billion) aid package for Greece won’t stop the deficit crisis from spreading.

Demand for Europe’s currency weakened before Greek transport workers go on strike today and after German Chancellor Angela Merkel said she won’t release funds for Greece until the nation has a “sustainable” plan to reduce its shortfall. Australia’s dollar fell from a 19-month high against the yen as Asian equities declined, damping the appetite for riskier assets.

“There is concern that the German government may delay the extension of financial aid for Greece,” said Akane Vallery Uchida, a currency strategist at Royal Bank of Scotland Group Plc in Tokyo. “This led to resumed selling of the euro.”

The euro traded at 86.59 pence as of 6:58 a.m. in London from 86.58 pence yesterday in New York, when it declined to 86.04 pence, the lowest since Jan. 28. The 16-nation currency was at 125.60 yen from 125.73, and traded at $1.3373 from $1.3383. The dollar was at 93.95 yen from 93.96 yen.

Australia’s dollar fell 0.2 percent to 86.90 yen and slipped 0.2 percent to 92.51 U.S. cents.

“I’ve said for weeks that Greece must do its homework first,” Merkel said yesterday, drawing applause from an audience in Soest in North Rhine-Westphalia, where state elections are due on May 9.

No Decision

There will be no decision on aid for Greece until the International Monetary Fund works out a plan of cuts with the government in Athens, Merkel told reporters earlier yesterday in Berlin. Germany will assist Greece only after it agrees to take “tough” measures, she said.

Greece has 8.5 billion euros of bonds maturing 10 days after the regional election and the extra yield investors demand to hold its 10-year bonds over German bunds jumped 93 basis points yesterday to 652 basis points.

Greek Prime Minister George Papandreou will today brief lawmakers on the nation’s economic outlook. Transport workers are expected to hold a strike and a civil service union plans to stage a rally.

The yen and dollar strengthened against higher-yielding currencies as the MSCI Asia Pacific Index lost 0.3 percent.

“Lingering woes over Greece’s debt crisis seem to be dragging down Asian equities,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “This is causing safe- haven buying of the yen and the dollar.”

The yen typically strengthens in times of financial turmoil as Japan’s trade surplus frees the nation from dependence on overseas capital. The dollar benefits as the world’s main reserve currency.

Japan’s Economy

Japan’s currency also gained after the Nikkei English News reported, without saying how it obtained the information, that the central bank may upgrade its fiscal 2011 consumer price index forecast. BOJ policy makers will release their semiannual economic forecasts after their April 30 meeting in Tokyo.

“The Nikkei report on a possible upgrade in the BOJ’s forecasts suggests an improvement in fundamentals,” said Hideki Amikura, deputy general manager of foreign exchange at Nomura Trust & Banking Co. in Tokyo. “This is a yen-buying factor.”

‘Impetus’ for Dollar

The dollar advanced on speculation U.S. reports this week will show the nation’s economic recovery is gathering momentum, backing the case for the Federal Reserve to move closer to withdrawing stimulus.

The S&P/Case-Shiller home-price index in the U.S. climbed 1.3 percent in February, the first increase since December 2006, according to a Bloomberg survey before today’s report. Consumer spending increased at a 3.3 percent annual rate last quarter, more than double the 1.6 percent pace the previous three months, according to a separate survey before the April 30 report.

“The recent set of good U.S. data will fuel speculation about rises in interest rates there, providing some impetus to the dollar,” said Shuzo Kakuta, a senior foreign-exchange adviser at Tokyo Tomin Bank Ltd.

Futures on the CME Group Inc. exchange show a 72 percent chance the Fed will raise its benchmark rate by at least a quarter-percentage point by its December meeting, compared with 60 percent odds a week ago.

To contact the reporter on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.