Euro Declines Amid Concern Greece Will Struggle to Raise Funds

By Candice Zachariahs and Ron Harui

April 6 (Bloomberg) -- The euro dropped against the dollar for a third day amid concern European countries including Greece will struggle to raise funds to pay off maturing debt.

The euro weakened versus 15 of 16 major counterparts after the Financial Times reported Greece plans to sell bonds in the U.S. as it tackles the European Union’s widest fiscal gap, citing an unidentified official. The yen strengthened on speculation Japanese exporters bought the currency after it fell to a seven-month low against the dollar.

“People are concerned that it’s not just Greece, there are some definite sovereign debt issues in the region,” said Phil Burke, chief dealer for global currencies and rates at JPMorgan Chase & Co. in Sydney. “The market is still bearish on the euro overall and still wants to sell on rallies.”

Europe’s currency fell to $1.3418 as of 7:07 a.m. in London from $1.3484 in New York yesterday. The euro slid 0.8 percent, the most since March 18, to 126.23 yen. The yen gained to 94.07 per dollar from 94.37 yesterday, when Japan’s currency touched 94.79, the lowest since Aug. 24.

The euro has weakened 5.3 percent against the yen and 6.3 percent versus the greenback this year amid concern Greece’s fiscal shortfall will widen, adding to discord among European leaders over an aid package for the nation.

Greek Bonds

Greece is looking to raise $5 billion to $10 billion from investors in the U.S. to help cover its May borrowing requirement of about 10 billion euros ($13.5 billion), the Financial Times reported. The nation needs to borrow a total of 32 billion euros this year, Petros Christodoulou, director general of the Public Debt Management Agency, said last month in a Bloomberg Television interview.

Greece wants to amend a financial aid package brokered at a European Union summit last month in order to bypass an International Monetary Fund contribution, Market News International said, citing senior officials in Athens it didn’t identify.

The yen gained for a second day against the dollar on speculation exporters took advantage of the Japanese currency’s slide to bring back overseas earnings.

Japan’s large manufacturers expect the yen to average 91 per dollar this fiscal year, according to the Bank of Japan’s most recent Tankan survey. A weaker yen increases the competitiveness of Japanese goods overseas and boosts the value of revenue earned abroad.

“Japanese exporters are likely buying the yen,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore, “They should be quite happy with the current level.”

‘Hawkish’ RBA

The Australian currency rose to the highest since March 18 against the dollar after the central bank raised interest rates to 4.25 percent and said borrowing costs need to be “closer to average,” amid an expanding domestic economy and growth in Asia. The currency traded at 92.25 U.S. cents from 91.85 before the decision and 92.14 yesterday.

“The statement is still somewhat hawkish as it’s talking about continuing to move rates to average,” said Amy Auster, head of foreign-exchange and international economics research at Australia & New Zealand Banking Group Ltd. in Melbourne. “They’re now fairly confident that growth in Australia at least is going to be trend or potentially above trend.”

Relative Strength

Gains in Japan’s currency were limited as Pacific Investment Management Co., which runs the world’s biggest mutual fund, said investors should hold fewer euros, British pounds and yen. Pimco favors currencies in China, Brazil, Canada and Australia, which deliver attractive returns amid uneven global economic growth.

“We continue to expect a ‘desynchronized’ recovery, with less leveraged emerging economies likely to grow more robustly than the developed economies,” fund manager Paul McCulley, based at the company’s main office in Newport Beach, California, wrote on the company’s Web site.

Malaysia’s ringgit and the Philippine peso led gains in Asia on mounting speculation China will let the yuan appreciate, making goods imported from regional peers cheaper. The Bloomberg-JPMorgan Asia Dollar Index rose to a 19-month high.

Chinese yuan forwards rose to the strongest level in more than 10 weeks on speculation the U.S. decision to delay a report on global foreign-exchange policies will make China more willing to let the currency resume appreciation. Treasury Secretary Timothy F. Geithner three days ago announced the postponement of the April 15 deadline for the annual review, which may have resulted in China being labeled a currency manipulator.

Twelve-month non-deliverable forwards advanced to as much as 6.6145, the strongest level since Jan. 20.

“Clearly the market is seeing this as giving China a window of opportunity to move its currency,” said Thomas Harr, a senior foreign-exchange strategist at Standard Chartered Plc in Singapore. “We will likely see more volatility in the central parity rate in May or June, and then you will see more clear depegging in the late second quarter or the beginning of the third quarter.”

To contact the reporters on this story:
Candice Zachariahs in Sydney at
czachariahs2@bloomberg.net;
Ron Harui in Singapore at
rharui@bloomberg.net.

Last Updated: April 6, 2010 02:19 EDT