May 13 (Bloomberg) -- The euro weakened for a third day against the dollar on concern governments may not cut budget deficits fast enough after the European Union announced a near $1 trillion bailout for the region’s most indebted countries.
The 16-nation currency also fell versus the yen and headed toward a record low against the Swiss franc. The Canadian and Australian dollars led gains in higher-yielding currencies after an Australian employment report added to signs the global economy is recovering.
“Sunday’s package, impressive as it is, is still a safety net and what’s going on above is precarious,” said Neil Mellor, a currency strategist at Bank of New York Mellon Corp. in London. “While these negative views keep circulating, every time it pops its head up, it gets slapped back down.”
The euro slid to $1.2580 as of 6:41 a.m. in New York, from $1.2614 yesterday. It traded at 116.80 yen, from 117.62. The yen was at 92.84 per dollar, from 93.24 yesterday.
The franc was at 1.4017 per euro, after strengthening earlier to 1.4006, matching the record low it reached on May 6.
Europe’s common currency has dropped 1.4 percent against the dollar this week, following the EU’s plan to shore up the region’s finances. The package included a pledge from the European Central Bank to buy government and private bonds to stem a surge in borrowing costs among so-called peripheral nations such as Greece, Spain and Portugal.
“Sentiment is just overwhelmingly negative for now,” said Geoffrey Yu, a currency strategist at UBS AG in London, citing the sovereign debt crisis.
Central Bank Support
Some central banks may have cut purchases of euros today, according to Stuart Thomson, who helps manage the equivalent of about $100 billion at Ignis Asset Management in Glasgow.
“The ECB is on its way to quantitative easing, its reputation was damaged over the weekend, and the support it had been getting from central banks wasn’t spotted this morning,” said Thomson. “Central banks are normally in supporting the euro but they haven’t been seen today.”
ECB President Jean-Claude Trichet said on France’s LCI TV yesterday that the decision to buy bonds won’t increase money supply. Executive Board member Jose Manuel Gonzalez-Paramo is scheduled to speak today at a conference in Valencia, Spain.
The euro may drop back to its January 1999 starting level of $1.18 by next month as widening deficits in the EU undermine the single currency, according to Sumitomo Mitsui Banking Corp.
Reconsidering Euro Status
The euro’s emergence as an alternative reserve currency to the dollar is in doubt because none of the European member states “follow budget deficit rules set by the Maastricht Treaty,” said Daisuke Uno, chief strategist at Sumitomo, a unit of Japan’s third-largest banking group. The treaty stipulates that EU states should keep their budget deficits within 3 percent of gross domestic product.
“The time has come to reconsider the status of the euro,” Uno said. “The currency needs to go back to the drawing board and start over.”
The euro may also have fallen amid speculation SAP AG’s $5.8 billion acquisition of Sybase Inc. will reduce demand for the currency.
“The only plausible reason for the drop is this merger story with SAP and Sybase,” said Adam Cole, head of global currency strategy at Royal Bank of Canada in London. “The market is short and it can get shorter, the risks are overwhelmingly to the downside because the issues in the periphery are far from playing out fully for the euro yet. The euro is still overvalued.”
Aussie, Kiwi
Australia’s currency gained 0.5 percent to 89.80 U.S. cents and 0.1 percent to 83.42 yen. New Zealand’s dollar rose 0.5 percent to 71.68 U.S. cents and 0.2 percent to 66.60 yen.
Australian employers added 33,700 jobs in April, the statistics bureau reported in Sydney today. Economists surveyed by Bloomberg News forecast a 22,500 gain. U.S. initial jobless claims fell 4,000 to 440,000 last week, a separate survey showed before today’s report.
“The jobs numbers were mixed to slightly positive,” said Greg Gibbs, a foreign-exchange strategist at Royal Bank of Scotland Group Plc in Sydney. “There has been a slightly positive reaction in the currency, which reflects that kind of characterization of the data.”
New Zealand’s manufacturing index increased to 58.9 in April from 56.7 in March, Bank of New Zealand Ltd. and Business New Zealand, a Wellington-based employer group, said on the group’s Web site today. A reading above 50 indicates that manufacturing is expanding. The index is at its highest since December 2004.
South Korea’s won led Asian currencies higher as the MSCI Asia Pacific Index of regional shares gained 1.8 percent, supporting demand for higher-yielding assets.
The won rose 1.4 percent to 1,128.10 per dollar. The currency has strengthened 3.2 percent this year as overseas investors plowed $7.6 billion into the nation’s stocks.
To contact the reporters on this story: Paul Dobson in London at pdobson2@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.
Last Updated: May 13, 2010 06:48 EDT
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