Euro Weakens to Five-Month Low Versus Dollar on Greece Concerns

By Yasuhiko Seki and Ron Harui
Jan. 20 (Bloomberg) -- The euro fell to the lowest level in five months against the dollar on concern Greece’s deteriorating finances will weigh on the region’s economic recovery.
The 16-nation currency also approached the lowest level in more than nine years against the Australian dollar on speculation European Central Bank Executive Board member Juergen Stark will reiterate his bearish outlook for the region’s economy and the budget deficit in Greece when he speaks today.
The New Zealand dollar fell for a second day after a government report showed consumer prices declined last quarter, damping prospects for an interest-rate increase.
"Greece’s debt problems look to be deep-rooted and they cannot be resolved immediately," said Takeshi Makita, a Tokyo- based economist at Japan Research Institute Ltd., a unit of Japan’s third-largest banking group. "The euro will remain under selling pressure."
The euro fell to $1.4167, the lowest since Aug. 19, before trading at $1.4199 as of 7:50 a.m. in London from $1.4288 in New York yesterday. The currency slid to 129.15 yen from 130.22 after earlier dropping to 129.07, the weakest since Dec. 21. New Zealand’s dollar dropped 1.1 percent to 72.73 U.S. cents.
The euro weakened to 0.6479 against the Australian dollar, near the lowest since September 2000, before trading at 0.6441.
Europe’s single currency dropped for a fifth day versus the dollar after Moody’s Investors Service said yesterday the Greek budget plan’s success "cannot be taken for granted" and kept its debt rating at A2, the lowest among the 16 euro-area members.

EU Finance Chiefs

European finance chiefs said Greece’s fiscal crisis is affecting other nations and called on the government to step up its budget-cutting efforts.
"The fate of one is the fate of all," European Union Economic and Monetary Affairs Commissioner Joaquin Almunia said at a press conference yesterday after a meeting of EU finance ministers in Brussels. "This situation in Greece is having effects on other countries."
ECB member Stark said on Jan. 15 the euro-group is not liable for member countries debt. Stark also said he expects money supply growth to be around zero in coming months. He will speak at the University of Leipzig today.
"Ongoing concerns about Greece may continue to weigh on the single currency," analysts led by Marc Chandler, New York- based global head of currency strategy at Brown Brothers Harriman & Co., wrote in a research note yesterday. "Pressure has intensified in recent days as European support seems half- hearted."

‘Serious Problem’

International Monetary Fund Managing Director Dominique Strauss-Kahn said the euro region will withstand the turmoil caused by Greece’s credit rating downgrades last month.
"It’s a serious problem," Strauss-Kahn said in an interview with Bloomberg Television in Hong Kong today, referring to the Greek fiscal situation. "But I don’t think that would lead to the fragmentation of the euro zone."
New Zealand’s dollar declined against all 16 of its most- traded counterparts after the nation’s statistics department said consumer prices slipped 0.2 percent in the fourth quarter from the previous three months.
Reserve Bank of New Zealand Governor Alan Bollard, who predicted prices would fall, said last month he expects to keep the benchmark interest rate at 2.5 percent until the middle of this year to help the economy recover from a recession.

Benchmark Rates

"This suggests that the Reserve Bank has time up its sleeve to continue to monitor how the economy develops and they won’t be in any rush to bring forward the timing of the hiking cycle," said Khoon Goh, a senior markets economist at ANZ National Bank Ltd. in Wellington. The currency is likely to find buyers toward 73.30 U.S. cents, he said.
Benchmark rates are 2.5 percent in New Zealand and 3.75 percent in Australia, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets.
Overseas investors are funneling money into Asian assets as the region leads a global recovery that’s being driven by interest-rate cuts and more than $2 trillion in government spending worldwide. Foreign direct investment in China more than doubled in December, while the MSCI Asia Pacific Index of shares advanced 49 percent over the past year.
"Underlying risk sentiment remains intact as long as stocks maintain their momentum and the Chinese economy is improving," said Kengo Suzuki, manager of the foreign bond department in Tokyo at Mizuho Securities Co. "The dollar and the yen will underperform against higher-yielding or commodity currencies."