Thursday, February 11, 2010

Euro Falls as EU’s Greece Agreement Offers Limited Measures

By Ben Levisohn

Feb. 11 (Bloomberg) -- The euro tumbled against all of its most-traded counterparts after the European Union offered few details of an agreement it brokered to help Greece weather its debt crisis.

The 16-nation common currency slid as a statement issued by European leaders left open how the EU would respond to a fresh wave of speculative attacks against Greece or countries such as Spain and Portugal, which are also struggling to cut their budget deficits. Australia’s dollar surged after the country’s jobless rate unexpectedly fell last month and Chinese bank lending increased

“The situation in Europe is not likely to change in the short term,” said Meg Browne, a vice president of foreign exchange research at Brown Brothers Harriman & Co. in New York. “The crisis concept is still in play.”

The euro dropped 0.4 percent to $1.3685 at 4:10 p.m. in New York, from $1.3737 yesterday. It slid 0.6 percent to 122.77 yen from 123.56 yesterday. The greenback declined 0.3 percent to 89.72 yen from 89.94 yesterday.

The agreement, brokered by German Chancellor Angela Merkel, Greek Prime Minister George Papandreou and European Central Bank President Jean-Claude Trichet, called for closer monitoring of the Greek economy and stopped short of offering concrete steps to help Greece handle a debt load exceeding annual economic output. The deal was announced at a European Union summit today.

‘Structural Convergences’

Royal Bank of Scotland cut its end-of-year forecast for the euro to $1.28 from $1.35, saying that any bailout will be little more than a short-term fix.

“Lingering concerns about failed long-term structural convergences are likely to act as a deadweight on euro-dollar’s upside, encouraging selling at $1.40 and above,” Alan Ruskin, head of currency strategy at RBS Securities in Stamford, Connecticut, wrote in a report.

The common currency fell 5 percent against the dollar this year on concern that nations with the biggest debt burdens may struggle to meet their obligations. Papandreou’s drive to bring his country’s budget deficit under control was yesterday challenged in the streets as labor unions closed schools, hospitals and airports.

Greece, representing 2.7 percent of the bloc’s $13 trillion economy, posted a budget deficit of 12.7 percent of gross domestic product in 2009, more than four times the bloc’s 3 percent limit. Herman Van Rompuy, the EU president, called today on the country to reduce the gap by 4 percentage points by the end of 2010.

‘Halved By the Crisis’

“The strains in Europe could delay an exit from easy money policy,” said Todd Elmer, currency strategist at Citigroup Inc. in New York. “It exacerbates the widening spreads in favor of the U.S. The cyclical underperformance of the euro area will pull the currency down.”

The euro slid against the greenback after Bundesbank President Axel Weber said he can’t rule out that the German economy will contract in the first quarter, Reuters reported, citing an interview. He also said that current interest rate levels are “appropriate.”

European Commission President Jose Barroso said in a presentation released by his office that reduced bank lending is holding back economic recovery in Europe and that the region’s growth potential has been “halved by the crisis.”

Australia’s dollar rose to a one-week high against the yen after a report showed employers added three times as many jobs as economists forecast, increasing pressure on the central bank to raise interest rates for a fourth time, and China reported lower-than-expected inflation. The Reserve Bank of Australia unexpectedly kept its benchmark rate at 3.75 percent on Feb. 2 after three straight increases.

‘True Risk Seeking’

The number of people employed in Australia climbed by 52,700 in January, the statistics bureau said. Analysts predicted an increase of 15,000. The jobless rate fell to 5.3 percent from 5.5 percent.

China’s inflation rate fell to 1.5 percent last month from 1.9 percent in December, a report showed, less than the 2.1 percent median estimate in a Bloomberg News survey. Slowing inflation damped speculation Chinese authorities would take more steps to curb growth in the world’s third-largest economy.

“We’re seeing better growth in Asia lifting risk appetite,” said Boris Schlossberg, director of currency research at the online currency trader GFT Forex in New York. “True risk seeking is focused on the Australian dollar.”

The Aussie advanced 1.5 percent to 79.91 yen and rose 1.7 percent to 89.06 U.S. cents. New Zealand’s currency appreciated 1 percent to 62.92 yen and rallied 1.3 percent to 70.15 cents.

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