By Ben Levisohn and Paul Dobson
April 21 (Bloomberg) -- The euro dropped against the dollar for a fifth day in the longest stretch of decreases since January on concern discussions of a $61 billion aid package for Greece may fail to contain the nation’s debt crisis.
The yen erased its decline versus the euro as U.S. stock- index futures reversed their gain, discouraging demand for higher-yielding assets. The yield premium investors demand to hold Greek 10-year bonds instead of benchmark German bunds climbed to 5.01 percentage points, the highest level since at least March 1998.
“The Greece story won’t go away,” said Alan Ruskin, head of currency strategy at Royal Bank of Scotland Group Plc in Stamford, Connecticut. “The package hasn’t assuaged the longer- term fears of default. People are looking at alternatives to the euro.”
The euro decreased 0.4 percent to $1.3377 at 8:02 a.m. in New York, from $1.3435 yesterday, after falling to $1.3359, the lowest level since April 9. The yen appreciated 0.5 percent to 124.57 per euro, from 125.24, after earlier declining 0.2 percent. The dollar traded at 93.14 yen, compared with 93.22.
Representatives from Greece, the euro region, the International Monetary Fund and the European Central Bank met to discuss deficit-reduction measures Greece will have to accept before tapping 30 billion euros ($41 billion) in aid from the European Union and as much as 15 billion euros from the IMF.
Greece’s deficit of 12.9 percent of gross domestic product is four times the EU limit. Budget shortfalls across the euro region have surged as governments bailed out banks and spent billions on economic stimulus.
‘Spillover Effects’
“There’s a continuation of the problems within the euro zone with regard to possible Greek spillover effects,” said Ian Stannard, a foreign-exchange strategist at BNP Paribas SA in London.
South Africa’s rand decreased 0.5 percent to 12.56 yen and Australia’s dollar fell 0.2 percent to 86.86 yen on speculation investors will reduce carry trades, in which they buy higher- yielding assets with amounts borrowed in nations with low interest rates. Japan’s benchmark of 0.1 percent has made the yen popular for funding such transactions.
Credit-default swaps on Greece surged 25 basis points, or 0.25 percentage point, to a record 488.5, according to CMA DataVision prices in London.
The euro may slump toward the lowest level this year versus the dollar and underperform Asian currencies as reduced spending in debt-ridden nations damp the region’s growth, according to State Street Corp.
ECB Borrowing Costs
Economists now expect the ECB won’t start raising interest rates until next year as countries including Greece, Portugal and Spain struggle to curb their sovereign debt. In contrast, the Federal Reserve may lift its fed funds target rate as early as November, while policy makers in India and Malaysia started withdrawing monetary stimulus this year.
“The market will focus on the different growth rates between Europe and the rest of the world, particularly North America and Asia, and that will weigh on the euro,” said Chris Loong, head of currency management and asset allocation in Sydney at State Street. “Austerity packages and commitments by Greece and other European nations to tighten their belts could mean lower growth prospects.”
The pound rose 0.2 percent to $1.5386 as a report showed the U.K.’s unemployment fell in March more than forecast.
The number of people collecting jobless benefits dropped 32,900 to 1.54 million in March, the Office for National Statistics said. The median forecast in a Bloomberg survey of 26 economists was for a decrease of 10,000.
Stronger Franc
The Swiss franc strengthened 0.2 percent to 1.4329 per euro after the Swiss National Bank said its euro reserves advanced to 56 billion euros in the first quarter, from 37 billion euros in the fourth quarter of 2009.
The data point “to far more intervention compared to previous quarters” by the SNB to stem the Swiss franc’s gains, Adarsh Sinha, a currency strategist at Barclays Plc in London, wrote in a note to clients today. “The sharp fall in the efficiency of intervention in the first quarter is likely to be a concern for the SNB.
South Korea’s won rose toward a 19-month high as earnings reports spurred demand for higher-yielding assets, with overseas investors adding to their holdings of the nation’s shares. They have been net purchasers of South Korean stocks on all but four days since the end of February, taking inflows for the year to $8.9 billion, exchange data show.
“A good set of earnings results is bolstering overall risk-taking sentiment,” said Woon Khien Chia, a Singapore-based foreign exchange and interest-rate strategist at Royal Bank of Scotland Group Plc.
The won appreciated 0.9 percent to 1,107.65 per dollar. It touched 1,107.20 on April 15, the strongest level since Sept. 15, 2008, when Lehman Brothers Holdings Inc. collapsed.
To contact the reporters on this story: Ben Levisohn in New York at blevisohn@bloomberg.net; Paul Dobson in London at pdobson2@bloomberg.net
Last Updated: April 21, 2010 08:07 EDT
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