Euro Drops to Record Against Swiss Franc as Greece Draws in IMF

By Yasuhiko Seki and Ron Harui

March 24 (Bloomberg) -- The euro fell to a record low against the Swiss franc after French and German leaders said any aid package for Greece would require help from the International Monetary Fund, undermining confidence in the European Union.

The 16-nation euro dropped to a 10-month low versus the dollar as uncertainty about the bailout of Greece damped demand for European assets. The franc rose for a ninth day versus the euro, its longest winning streak since 2002, on speculation Switzerland’s central bank will allow the currency to gain. New Zealand’s dollar declined versus all 16 major currencies after the current-account deficit was wider than economists estimated.

“It looks like the eurozone can’t resolve the Greek crisis by themselves so they are going to the IMF for help,” said Tsutomu Soma, a bond and currency dealer in Tokyo at Okasan Securities Co. “This casts some doubt over the strength of the European Union. The bias is to sell the euro.”

The euro fell as low as 1.4233 francs, before trading at 1.4234 as of 2:16 p.m. in Tokyo from 1.4275 in New York yesterday. The single currency dropped to $1.3456 from $1.3499, after earlier falling as low as $1.3407, the weakest since May 8. It declined to 121.62 yen from 122.03 yen. The dollar traded at 90.64 yen from 90.40 yen.

The euro weakened versus 13 of its 16 major counterparts after a German Finance Ministry official told reporters in Berlin, on condition of anonymity, that Germany and France agreed to back an IMF role in any aid for Greece. The shift, before a two-day EU summit that starts tomorrow, came a week after euro-area finance ministers agreed to a European framework for a bailout.

‘Resist Calls’ 

German Chancellor Angela Merkel’s Christian Democratic Union party expects her to “resist calls to agree” to aid at the European Union summit, CDU parliamentary group finance spokesman Michael Meister said in an interview yesterday. That increased chances that Greece would leave the March 25-26 EU meeting in Brussels empty handed.

French President Nicolas Sarkozy had backed a European solution and Luxembourg’s Jean-Claude Juncker, who heads the group of finance ministers in the euro region, said the EU won’t “abandon” Greece.
“It looks like Germany has changed its stance in the last couple of days and is now keen to at least have some IMF involvement in any bailout package,” said Gareth Berry, a currency strategist in Singapore at UBS AG, the world’s second- largest foreign-exchange trader. “The idea there is to make any eventual deal more passable to a domestic audience.”

‘Last Resort’ 

Merkel said on March 22 that Germany would only consider financial aid to Greece as a “last resort” if the country were to face insolvency. Sixty-one percent of Germans are opposed to their government giving money to Greece, the Financial Times reported March 22, citing an FT/Harris poll.
The franc strengthened past 1.43 per euro yesterday for the first time, even after Swiss National Bank President Philipp Hildebrand reiterated policy makers are ready to act “decisively” to counter any “excessive” gains.
“Market perceptions are still strong that SNB may be taking a relaxed stance on foreign-exchange intervention,’ said Takashi Kudo, a general manager in Tokyo of market information at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “This factor and possibly its safe-haven allure are causing the franc to be bought.”

N.Z. Dollar 

The New Zealand dollar declined for the third time in four days after the nation posted a current-account deficit of NZ$3.57 billion ($2.52 billion), more than the NZ$1.6 billion forecast by economists surveyed by Bloomberg.

“We’ve seen a drop in the currency on the back of the current-account numbers,” said Mike Jones, a foreign-exchange strategist at Bank of New Zealand Ltd. in Wellington. “GDP is a much more important indicator in terms of policy underlying the economy. We should see the kiwi pare its losses.”

New Zealand’s economy expanded 0.8 percent in the last three months of 2009, according to a Bloomberg survey before the statistics bureau report tomorrow. That would be the fastest since the fourth quarter of 2007.

The so-called kiwi fell 0.5 percent to 70.40 U.S. cents, and lost 0.3 percent to 63.78 yen.
The dollar rose to a three-week high versus the euro on speculation improving data in the world’s largest economy will allow the Federal Reserve to ends its stimulus measures ahead of major counterparts.
“If expectations about future rate increases rise amid the plethora of positive data, the dollar will strengthen against the yen and euro,” said Koji Fukaya, a senior currency strategist in Tokyo at Deutsche Bank AG.
Orders for U.S. durable goods rose for a third month in February, gaining 0.6 percent, according to a Bloomberg News survey ahead of the Commerce Department report today.

Futures on the CME Group Inc. exchange showed a 58 percent chance the Fed will raise its target rate for overnight bank lending by at least a quarter-percentage point by its November meeting, compared with 54 percent odds a week earlier.

To contact the reporter on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.
Last Updated: March 24, 2010 01:20 EDT