Euro Falls on Renewed Concern Greece Bailout Package Not Enough

By Ben Levisohn and Bo Nielsen

April 15 (Bloomberg) -- The euro dropped for the first time in six days against the dollar and yen on concern the European Union-led 45 billion euro ($61 billion) rescue plan for Greece won’t be enough to restore the currency’s credibility.

The common currency fell versus most of its major counterparts as the extra yield investors demand to hold Greek 10-year bonds instead of benchmark German bunds touched a level above 4 percentage points for the first time since Greece’s bailout package was announced April 11. China’s economy grew at the fastest pace in almost three years, adding to pressure on the government to let the yuan appreciate.

“There are structural long-term issues in the euro zone that will not be addressed by a single life line to Greece,” said Omer Esiner, a senior foreign-exchange analyst in Washington at Travelex Global Business Payments, a currency- exchange network. “That will keep the euro vulnerable.”

The euro fell 0.7 percent to $1.3554 at 9:22 a.m. in New York, from $1.3653 yesterday. The currency decreased 0.7 percent to 126.40 yen, from 127.29. The dollar traded at 93.26 yen, compared with 93.23.
International demand for U.S. stocks, bonds and other long- term financial assets strengthened in February as investors bought more equities and government securities, a Treasury Department report showed.

Net buying of long-term stocks, notes and bonds was $47.1 billion in February, compared with net purchases $15 billion in January. Economists in a Bloomberg News survey had projected long-term U.S. financial assets would show a net increase of $29.7 billion.

Stronger Won

South Korea’s won advanced versus the greenback after a report showed China’s gross domestic product grew 11.9 percent from a year earlier in the first quarter. The median forecast of 24 economists in a Bloomberg News survey was for an 11.7 percent increase.
The won advanced 0.4 percent to 1,107.55 per U.S. dollar, and Taiwan’s dollar appreciated 0.3 percent to 31.349.

The extra yield investors demand to hold 10-year Greek bonds instead of benchmark German bunds earlier rose to 4.27 percentage points on concern Greece will struggle to contain a deficit that is 12.9 percent of gross domestic product, the biggest since the euro was introduced in 1999. The spread was later 3.96 percentage points.

Greece’s 10-Year Debt 

The yield on Greece’s 10-year security pared its increase, advancing 0.09 percentage point to 7.16 percent after earlier rising 0.30 percentage point.

The euro has dropped more than 5 percent against the dollar this year on concern EU leaders will fail to prevent the fiscal crisis from spreading to other member states including Portugal. The EU said yesterday Portugal may need to enact additional measures if it’s to cut its budget deficit.

“The market is focused on signs whether we’ll get further contagion from Greece into Portugal, and it’s keeping the euro on the back foot,” said Paul Robson, a senior foreign-exchange strategist at Royal Bank of Scotland Group Plc in London.

The pound rose 0.6 percent to 87.77 pence against the euro after the Daily Telegraph said a survey showed the Conservative Party has extended its lead over the Labour Party, easing concern next month’s election won’t produce a clear winner.


“The poll signaled signs of stabilization in the political situation in the U.K., which is positive for the pound,” said Yousuke Hosokawa, a senior currency dealer in Tokyo at Chuo Mitsui Trust & Banking Co., a unit of Japan’s seventh-largest bank. “This is especially so after the British currency has languished recently on concerns over political uncertainties.”

Dollar Index 

The Dollar Index, which tracks the dollar against the currencies of six major U.S. trading partners, which IntercontinentalExchange Inc. uses to track the greenback versus the currencies of six major U.S. trading partners, rose 0.6 percent to 80.640.

It declined yesterday to 80.031, the lowest level since March 18, as Fed Chairman Ben S. Bernanke said in testimony to Congress’s Joint Economic Committee that policy makers have “stated clearly” that interest rates will be near a record low for an “extended period.”

“Fed policy makers, particularly Bernanke, are reiterating that extremely low rates will be needed for an extended period,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “The dollar is likely to weaken.”

To contact the reporters on this story: Ben Levisohn in New York at blevisohn@bloomberg.net; Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net
Last Updated: April 15, 2010 09:26 EDT