Euro Falls Against Dollar On Greece Concern

By Kristine Aquino and Mariko Ishikawa - Sep 15, 2011 1:02 PM GMT+0700

The euro declined against the dollar on concern that the risk of a Greek default is increasing borrowing costs for other European countries.

The single currency weakened against the yen before Spain and France offer government securities today. The New Zealand dollar fell against its U.S. and Japanese counterparts after the central bank left interest rates unchanged and said that the global economy may slow “sharply.” The U.S. and Japanese currencies rose versus most of their major peers as Asian stocks pared earlier gains.

“It’s difficult to build a fundamental positive outlook for the European currency,” said Jonathan Cavenagh, a Singapore-based strategist at Westpac Banking Corp. “The market is inevitably telling the European authorities that they need to be doing more and we’re just not seeing that action yet.”

The euro fell to $1.3720 as of 6:31 a.m. in London from $1.3755 yesterday in New York. The shared currency weakened to 105.22 yen from 105.39. The dollar was at 76.69 yen from 76.62.

The MSCI Asia Pacific Index of shares advanced 0.8 percent after earlier rallying as much as 1.6 percent.

Spain will today sell as much as 4 billion euros ($5.5 billion) of bonds maturing in 2019 and 2020. France will offer securities maturing in 2013, 2014 and 2016 and is preparing to auction inflation-linked bonds due in 2019 and 2022.

China Bond Purchases

China is willing to buy euro bonds from countries involved in the sovereign debt crisis “within its capacity,” Zhang Xiaoqiang, vice chairman of the country’s National Development and Reform Commission, said today at the World Economic Forum in Dalian. Zhang reiterated comments made yesterday at the event by Premier Wen Jiabao, who said developed nations must first “put their own houses in order,” cut deficits and open markets rather than rely on China to bail out the world economy.

Italy sold 3.9 billion euros of five-year notes on Sept. 13 at an average yield of 5.6 percent, up from 4.93 percent at the auction on July 14. Demand dropped to 1.28 times the amount on offer, from 1.93 times.

Fitch Ratings downgraded five of Spain’s regions including Andalusia and Catalonia yesterday, saying debt levels are surging and the weak economic recovery will undermine revenue. The country’s regional governments are behind schedule to meet deficit targets, according to data released last week that Moody’s Investors Service said was “credit negative.”

‘Risk-Averse Mode’

“Markets seem to still be in quite a risk-averse mode,” Westpac’s Cavenagh said. “The dollar is benefiting from that, so is the yen.”

The yen has appreciated 3.3 percent in the past week, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The dollar, the second best, gained 2 percent.

The yen tends to appreciate during economic and financial turmoil because Japan’s current account surplus makes it less reliant on foreign capital. The dollar benefits as the world’s reserve currency.

Declines in the euro were limited after French President Nicolas Sarkozy and German Chancellor Angela Merkel said in a statement that they are “convinced that the future of Greece is in the euro zone.” The statement from the leaders of Europe’s two biggest economies followed a telephone discussion yesterday with Greek Prime Minister George Papandreou.

Papandreou committed to meet deficit-reduction targets demanded as a condition for an international bailout, according to statements distributed by the governments in Athens, Berlin and Paris.

‘Looking Quite Oversold’

The euro’s 14-day relative strength index versus the yen was at 25.5, below the 30-level that some traders see as a sign an asset’s price may reverse direction after falling too rapidly.

“In the short term, the euro may get a little bit of a bounce,” said Derek Mumford, a Sydney-based director at Rochford Capital, a foreign-exchange and interest-rate risk- management firm. “It’s looking quite oversold.”

New Zealand’s dollar fell against all of its major counterparts after the Reserve Bank held its official cash rate at 2.5 percent and signaled no urgency to raise borrowing costs until the global recovery strengthens.

“The kiwi has moved down as a knee-jerk response to the statement which was a little more dovish than expected,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp., Australia’s second-largest lender. “The RBNZ has dropped its rates track and is now closer to what swaps markets were pricing. Swaps had already priced in a rather dire global situation.”

The so-called kiwi dollar dropped 1.2 percent to 81.30 U.S. cents. It slid 1.1 percent to 62.35 yen.

To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net