Euro Falls to Lowest Level Since March 2009 on Greece Concern

By Ben Levisohn and Lukanyo Mnyanda

May 5 (Bloomberg) -- The euro plunged to its weakest level against the dollar in over a year amid growing concern Greece’s fiscal woes will spread to other indebted nations.

The 16-nation currency traded below $1.29 for the first time since March 2009 as Moody’s Investors Service placed Portugal’s Aa2 government bond ratings on review for possible downgrade. Greeks halted flights and shut shops as strikes escalated in a challenge to Prime Minister George Papandreou’s plans to cut wages and pensions and raise taxes in return for a 110 billion- euro ($143 billion) rescue package. German Chancellor Angela Merkel said Europe is “at a crossroads.”

“The market has lost confidence in the bailout process and that has led to concern over the euro,” said Amelia Bourdeau, a currency strategist in Stamford, Connecticut, at UBS AG. “It’s questioning the medium-term implications of the package: Can Greece meet the terms and will the package be enough to stop contagion risk?”

The euro fell 0.7 percent to $1.2894 at 8:44 a.m. in New York, from $1.2987 yesterday. It touched 1.2883, the weakest level since March 16, 2009. The currency was at 122.25 yen, the lowest since March 24, from 122.78 yen. The greenback bought 94.81 yen, from 94.54 yen. Financial markets were shut today in Japan for a holiday.

The dollar remained higher against the yen as companies in the U.S. added 32,000 employees in April, according to data from ADP Employer Services, more than the median forecast in a Bloomberg survey for a gain of 30,000.

‘Future of Europe’ 

The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, will rise to 56 in April from 55.4, another survey showed before a report at 10 a.m. New York time.

Today’s general strike, the third this year, follows Papandreou’s announcement of a second set of wage cuts for public workers, a three-year freeze on pensions and a second increase this year in sales taxes and the price of fuel, alcohol and tobacco. Union groups have called the measures “savage.”
The aid package is about “the future of Europe and the future of Germany,” Merkel told lawmakers in Berlin as she opened a debate on the program. European Central Bank council member Axel Weber said Greece’s fiscal crisis is threatening “grave contagion effects” in the euro area, justifying Germany’s contribution to the aid package.

‘Crisis of Confidence’ 

So far, aid for Greece has failed to quell investor concern that the crisis will spread. Investors demanded 687 basis points more to hold 10-year Greek bonds instead of similar-maturity German bunds. The average in the five years through 2009 was 70 basis points. The spread between bunds and Portuguese 10-year bonds widened 21 basis points to 273 basis points.

“This is a crisis of confidence,” said Boris Schlossberg, director of research at online currency trader GFT Forex in New York. “The credit spreads continue to deteriorate and the euro won’t stabilize until the spreads stabilize.”
Asian currencies slumped with stock markets, extending a decline that wiped out more than $1.1 trillion from the value of global equities yesterday. The MSCI World Index fell 0.5 percent.
The Philippine peso depreciated 0.8 percent to 45.02 per dollar, Malaysia’s ringgit dropped 0.6 percent to 3.2328 and the Singapore dollar lost 0.3 percent to S$1.3853. Onshore markets in South Korea and Thailand were closed for public holidays.

The pound gained 0.1 percent to $1.5156, after declining in the past three days. It gained for a third day against the euro, climbing 0.2 percent to 85.58 pence.

Conservative Party 

The currency is strengthening against its most-active counterparts and government bonds are rebounding as polls show David Cameron’s Conservative Party, which has pledged to make bigger cuts to the deficit than the ruling Labour Party, may come closest to winning tomorrow’s election.

Sterling has advanced 3.2 percent against the Group of 10 currencies from this year’s low on March 10, after falling 7.4 percent in the previous six weeks, according to Bloomberg correlation-weighted indexes.
A ComRes Ltd. daily poll shows 37 percent of respondents planning to vote Conservative, 29 percent backing the ruling Labour Party and 26 percent endorsing the Liberal Democrats. That would give the Conservatives 294 seats, 32 short of a majority, ComRes said. A YouGov Plc survey gave 35 percent support to the Conservatives and 30 percent to Labour, up 2 points. The Liberal Democrats slipped 4 points to 24 percent.

To contact the reporters on this story: Ben Levisohn in New York at blevisohn@bloomberg.net; Lukanyo Mnyanda in London at lmnyanda@bloomberg.net
Last Updated: May 5, 2010 08:48 EDT