Tags: Euro | Crisis | dollar

Euro Weakens on EU Divisions Over Greece; Dollar Index Rises

Friday, 16 Sep 2011 09:55 AM

The euro fell, halting a two-day gain versus the dollar and yen, on concern issues of collateral required by some nations to take part in another Greek bailout will hinder agreement at a meeting of European officials today.

The 17-nation currency pared its first weekly advance this month versus the greenback after Finland’s Finance Minister Jutta Urpilainen said it was unlikely an agreement on collateral would be reached at the gathering in Wroclaw, Poland. The Dollar Index rose for the first time this week as Nobel-prize winning economist Joseph Stiglitz warned of a recession in Europe and the U.S., spurring demand for safer assets. Sweden’s krona fell.

“There is some skepticism still with respect to whether or not there will be any real solution apparent from today’s meeting,” said Jane Foley, a senior currency strategist at Rabobank International in London. “There are a lot of people wanting to move out still of euro longs and square up. They are seeing the better levels in euro-dollar as a way to do that.” A long position is a bet an asset will gain.

The euro weakened 0.4 percent to $1.3820 at 6:52 a.m. in New York, paring its weekly advance to 1.2 percent. The shared currency depreciated 0.4 percent to 105.98 yen, and dropped 0.6 percent against the pound to 87.32 pence. The dollar was little changed at 76.70 yen.

‘Unity of Purpose’

European Central Bank President Jean-Claude Trichet pressed euro-area governments to take decisive action at today’s meeting to halt the crisis and show “unity of purpose.” His comments, made late yesterday, came as the challenges in stem the debt crisis was highlighted by disputes over collateral for Greek loans and German objections to altering European treaties.

“We’re going to negotiate about it, but unfortunately I don’t see that we can find a solution” today, Finland’s Urpilainen told reporters before the meeting, which is also being attended by U.S. Treasury Secretary Timothy Geithner.

“There’s already a lot of scorn coming out of Europe, like we don’t need you to tell us what to do,” said Geoffrey Yu, a foreign-exchange strategist at UBS AG in London. European officials “really need to be absorbing ideas, rather than dismissing them outright,” he said.

The euro is likely to trade between $1.38 and $1.40 over the next few days, Yu said.

The debt overhang is taking its toll on the wider economy, the European Commission said yesterday. It cut its growth forecast to 0.2 percent for the third quarter and 0.1 percent in the fourth, down from earlier projections of 0.4 percent for both periods.

Extra Dollars

The euro jumped the most in a month yesterday after the ECB said it will coordinate with the Federal Reserve and other central banks to conduct three separate dollar liquidity operations to ensure lenders have enough of the currency through the end of the year.

The cost of converting euro payments into dollars, measured by the three-month cross-currency basis swap, declined to 84 points below the euro interbank offered rate, or Euribor, in London from 107.2 points a week ago.

“Banks are short of liquidity because people don’t trust the economic policy structure in Europe,” Richard Yetsenga, global head of foreign-exchange strategy at Australia & New Zealand Banking Group Ltd., said on Bloomberg Television. “This dollar-swap helps but is not going to be enough to stabilize things just yet. We need something bigger.”

Dollar Index

The Dollar Index, which measures the greenback against the currencies of six major U.S. trading partners, trimmed a weekly decline as concern the world’s largest economies are slowing fuels demand for the safest assets.

There is “a serious risk at least” of a double-dip recession in the U.S. and Europe, Columbia University professor Stiglitz said yesterday in an interview with Bloomberg HT television in Istanbul. The U.S. jobs deficit will almost certainly grow and “the sense of the American economy not working is going to be worse,” he said.

The Dollar Index gained 0.2 percent to 76.472, paring this week’s loss to 1 percent.

The Swedish krona weakened against all of its major counterparts, and Norway’s krone dropped, on speculation rising volatility in financial markets is deterring investors from taking positions in the currencies.

“The liquidity issue with respect to the krone and the krona always means that buying those currencies is a dangerous thing,” Rabobank’s Foley said. “You can see very violent moves because of the lack of liquidity.”

The krona fell 0.6 percent to 6.6254 per dollar, and the krone slid 0.4 percent to 5.5918.

The greenback has appreciated 3.1 percent in the past month, the best performance after the yen’s 3.3 percent gain among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro has fallen 1.6 percent.

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The euro fell, halting a two-day gain versus the dollar and yen, on concern issues of collateral required by some nations to take part in another Greek bailout will hinder agreement at a meeting of European officials today.The 17-nation currency pared its first weekly...
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