Euro Weakens as Samaras Fails to Secure Spending Cuts

The euro fell for the first time in four days versus the dollar as Greece’s coalition failed to reach a deal on 11.5 billion euros ($14.7 billion) of spending cuts, renewing concern that the debt crisis is deepening.
The common currency slid against most of its 16 major peers before a court in Germany rules on the nation’s participation in Europe’s permanent bailout fund on Sept. 12. The Netherlands holds elections the same day. Australia’s dollar and the South African rand declined after a report showed Japan’s economy expanded at half the pace the government initially estimated in the second quarter, damping demand for riskier assets.
in Europe’s permanent bailout fund on Sept. 12. The Netherlands holds elections the same day. Australia’s dollar and the South African rand declined after a report showed Japan’s economy expanded at half the pace the government initially estimated in the second quarter, damping demand for riskier assets.

“Traders are shaving their positions at the start of a week where we have quite a number of hurdles,” said Michael Derks, chief strategist at FxPro Group Ltd. in London. “There’s a lot for the market to absorb and traders, having seen the euro climb quite rapidly over the past few trading sessions, are just being a little careful.”
The 17-nation euro fell 0.3 percent to $1.2781 at 9:10 a.m. London time after rising 2 percent over the past three days. It was 0.2 percent weaker at 100.08 yen. The dollar was little changed at 78.30, after dropping 0.8 percent on Sept. 7.
Greek Prime Minister Antonis Samaras is due to meet officials from the euro area, the European Central Bank and International Monetary Fund today.

Austerity Measures

Greece’s Democratic Left leader Fotis Kouvelis, whose party is one of the three in the coalition government, said no decision had been made on spending cuts and that poorer Greeks must be protected from austerity measures. The three leaders agreed to meet again on Sept. 12, two days before euro-area finance ministers gather in Cyprus for a briefing on Greek progress.
Germany’s Federal Constitutional Court is due to rule on the country’s participation in the European Stability Mechanism, a permanent 500 billion-euro fund that offers loans to member states and may buy their bonds to lower borrowing costs. Germany is the region’s largest economy and will be the biggest contributor to the fund with a 27 percent share, a statement from the European Commission shows.
The court’s decision will come the same day as Dutch voters decide whether to back parties questioning an expansion of European powers.

Trade Deficit

Even with these events, the euro may test its 200-day moving average, currently at $1.2838, over the next week, Derks said. The 17-nation shared currency has only traded above the key average on three days in the past year, according to data compiled by Bloomberg.
The euro has fallen 3.4 percent this year, the second-worst performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen has dropped 3.9 percent, while the dollar has declined 2 percent.
The dollar strengthened against most of its major peers even before a Commerce Department report due tomorrow that economists surveyed by Bloomberg News said will show the U.S. trade deficit widened to $44.4 billion in July from $42.9 billion in June.
Labor Department figures showed on Sept. 7 that nonfarm payrolls increased by 96,000 in August, down from a revised 141,000 the previous month. The unemployment rate was 8.1 percent, compared with 8.3 percent in July.
Fed Chairman Ben S. Bernanke said on Aug. 31 at an economic summit in the Jackson Hole, Wyoming, that weak hiring and unemployment exceeding 8 percent posed a “grave concern.”

QE Option

Bernanke said bond purchases are an option as central bankers weigh further steps to spur growth on top of the $2.3 trillion in quantitative easing implemented since 2008. The Fed will start a two-day policy meeting on Sept. 12.
“The market is right to anticipate that there will be another round of asset purchases” by the Fed, said Sean Callow, a senior currency strategist at Westpac Banking Corp. (WBC) in Sydney, Australia’s second-biggest lender. “It’s looking increasingly likely and that’s a negative for the U.S. dollar.”
The dollar may test its June low against the yen should it break its recent range of 78 yen to 79, Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co., wrote in a research note.
The greenback has fallen below 78 only three times since June 1 when it touched 77.66, the weakest since Feb. 14, according to data compiled by Bloomberg. It slid to as low as 78.02 on Sept. 7.

Japanese Growth

Australia’s dollar and the South African rand weakened as separate reports indicated the pace of global growth may be slowing.
Japanese gross domestic product grew an annualized 0.7 percent in the three months through June, the Cabinet Office said in Tokyo today, less than a preliminary calculation of 1.4 percent. The median forecast of 26 economists surveyed by Bloomberg News was for a revised 1 percent gain.
A government report also showed that China’s imports dropped 2.6 percent in August from a year earlier, marking the first decline since January.
The so-called Aussie lost 0.3 percent to $1.0354 and retreated 0.2 percent to 81.05 yen. China is Australia’s biggest export market. The rand fell 0.3 percent to 8.1970 per dollar.

To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net