The euro fell against the dollar from the highest level in almost four months as European Union leaders failed to solidify a permanent bailout mechanism during a summit ended yesterday.
Declines in the 17-nation currency this week were limited by speculation the European Central Bank will increase interest rates in April. The dollar fell against currencies linked to commodities, with the Australian dollar strengthening to the most versus its U.S. counterpart since foreign-exchange controls ended in 1983, before a report that may show U.S. private employers added 222,000 jobs in March.
“EU leaders, they sound fairly optimistic no country after Portugal may need a bailout, but it’s too early to say that for sure and I don’t see any justification for euro to be up even this high,” said Blake Jespersen, director of foreign exchange in Toronto at Bank of Montreal. “The market continues to have fairly good risk appetite, despite the turmoil going on.”
The euro fell 0.7 percent to $1.4088 in New York, from $1.4182 in the week ended March 18. It touched $1.4220 on March 22 the highest level since Nov. 5. The shared currency fell to 114.59 yen, from 114.31. The dollar strengthened versus the yen to 81.34, from 80.58.
Euro Trends
The euro weakened 0.5 percent against a basket of nine- developed nation currencies in the past week, according to Bloomberg Correlation Weighted Indexes. Futures show traders added to bets on higher borrowing costs in the region, with the implied yield on the three-month Euribor contract expiring in September rising 0.2 percentage point to 1.83 percent.
Jean-Claude Trichet, the ECB President, told the European Parliament March 21 he has “nothing to add” to his March 3 remarks when he said policy makers may raise the benchmark rate from a record low of 1 percent at their next meeting April 7. The Federal Reserve remains committed to keeping short-term interest rates low for an extended period.
EU leaders were divided about how to get the euro-region stopgap fund up to its capacity of 440 billion euros ($624 billion) to ease credit woes. European leaders pushed back the decision on funding a bailout mechanism to June.
‘A Little Wary’
“European leaders have shown that in crisis times they can get things done,” said Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut. “However, people are a little wary at this point.”
Fitch Ratings cut Portugal’s credit rating after the nation’s Prime Minister Jose Socrates resigned March 23.
Two European officials said a bailout for Portugal may total as much as 70 billion euros. Portugal made up about 1.8 percent of the total 17-nation euro-zone gross domestic product in the fourth quarter last year, according to Eurostat, the EU’s statistics office, and Bloomberg data, while Ireland accounts for 1.8 percent and Greece makes up 2.3 percent.
Portugal hasn’t asked for a bailout and the figures are preliminary, the officials said. The action would follow Greece and Ireland’s request of aid from the EU and the International Monetary Fund.
Dollar Index
The Dollar Index, which tracks the currency against six major trading partners, rose 0.6 percent to 76.151, from 75.718. The dollar fell on a weekly basis against the New Zealand, Australia, South African and Canadian currencies as the price of raw materials surged.
The Reuters/Jefferies CRB Index jumped 2.2 percent, the biggest weekly gain since March 4.
Australia’s dollar rose as much as 0.8 percent to $1.0294 yesterday, as technical levels were triggered.
“There were a lot of orders sitting above the $1.0255-60 level and so when it broke the level a lot of stops were triggered and we saw a very very quick move,” said Kathy Lien, director of currency research with online currency trader GFT Forex in New York. Traders place automatic buy and sell orders, known as stops, at predetermined prices to limit losses.
The yen fell for the first time in three weeks against the dollar in the week after the Group of Seven nations intervened to bring the currency down from a postwar high.
Yen Path
The yen surged to a post-World War II high of 76.25 versus the dollar on March 17 after a 9.0-magnitude earthquake and tsunami struck Japan on March 11, damaging cooling systems at a nuclear-power plant north of Tokyo.
Switzerland’s franc fell against all its major counterparts last week. The move follows the franc’s biggest five-day gain versus the greenback since June, as investors sought a haven amid lingering tensions in the Middle East, according to the Swiss National Bank.
The franc weakened 2.1 percent to 91.99 centimes per dollar, after gaining 3.1 percent the week ended March 18.
“The franc was just overdone and now we’re seeing a move the other way,” said Tim O’Sullivan, chief trader at FOREX.com, a unit of the online currency trading company Gain Capital in Bedminster, New Jersey. “I still think it’s a good play to buy Swiss and sell dollars in this environment.”
The pound fell against most of its major counterparts, excluding the franc, after the Bank of England minutes showed policy makers voted 6-3 to keep rates steady on March 10 and saw “merit in waiting” to assess the effect of higher oil prices on the economy.
The currency was also pressured as Chancellor of the Exchequer George Osborne said the British economy will more grow more slowly this year than previously forecast. The Office for Budget Responsibility predicts annual growth in 2011 of 1.7 percent, down from the 2.1 percent forecast in November, Osborne said.
Britain’s currency fell 1.2 percent to $1.6042, from $1.6234 the previous week.
Source: Bloomberg By
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