Euro Falls for Fifth Week Versus Dollar on Greece, Growth

Feb. 13 -- The euro slid for a fifth week versus the dollar amid concern European Union efforts to avoid default by Greece will undermine the currency region and a report showed the EU’s economic recovery almost stalled.

The dollar rallied versus the yen after Federal Reserve Chairman Ben S. Bernanke said the central bank may raise the discount rate “before long” as economic stimulus measures are unwound. The euro yesterday touched an eight-month low versus the greenback as investors wait for the outcome of a Feb. 15-16 meeting of EU finance ministers that may provide details of a Greece bailout.

“It’s a very volatile process,” said Ron Leven, currency strategist at Morgan Stanley in New York. “No matter how this gets worked out, you will see more fiscal tightening, economic weakness and a European Central Bank that will be delayed in hiking rates. We are bearish on the euro.”

The euro dropped 0.3 percent to $1.3632 last week from $1.3678 on Feb. 5 for a fifth weekly decline, the longest streak in over a year. The 16-nation shared currency reached $1.3532 yesterday, the lowest since May 20. Against the yen, the euro rose 0.4 percent to 122.62, ending its four-week losing streak. The dollar rose 0.8 percent to 89.96 yen, from 89.25 last week.

The euro has fallen 4.8 percent against the dollar this year and 7.9 percent against the yen.

Futures traders this week increased bets to a record level that the euro will decline against the U.S. dollar.


Less Than Forecast


The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain, the net position, was 57,152 on Feb. 9, compared with 43,741 a week earlier, figures from the Washington-based Commodity Futures Trading Commission show.

The euro declined versus the dollar after the EU’s statistics office in Luxembourg yesterday said the region’s economy grew 0.1 percent in the fourth quarter, compared with economists’ forecasts for a 0.3 percent gain. It rose 0.4 percent in the third quarter.

The 16-nation common currency dropped on Feb. 11 as a statement issued by European leaders offered few details on how they would help Greece weather its debt crisis. Traders questioned how the EU would respond to a fresh wave of speculative attacks against Greece or countries such as Spain and Portugal, which are also struggling to cut their budget deficits.


‘Inevitable Break-Up’


The EU plan, brokered by German Chancellor Angela Merkel, Greek Prime Minister George Papandreou and European Central Bank President Jean-Claude Trichet, called for closer monitoring of the Greek economy.

“The statement bought the euro zone some time but unless something is done soon, downside pressure on the euro will persist,” said Geoffrey Yu, a currency strategist at UBS AG in London. The economic data will “give euro zone leaders an even greater incentive to get Greece sorted,” he said.

Southern European countries are trapped in an overvalued currency and suffocated by low competitiveness, a situation that will lead to the break-up of the euro bloc, according to Societe Generale SA strategist Albert Edwards.

The problem for countries including Portugal, Spain and Greece “is that years of inappropriately low interest rates resulted in overheating and rapid inflation,” London-based Edwards wrote in a report yesterday. “Any help given to Greece merely delays the inevitable break-up of the euro zone.”

Greece, representing 2.7 percent of the trading bloc’s $13 trillion economy, posted a budget deficit of 12.7 percent of gross domestic product in 2009, more than four times the EU’s 3 percent limit.


Real Fall


The dollar on Feb. 10 rose against the yen after Bernanke, in testimony prepared for the House Financial Services Committee, said the central bank may soon raise the discount rate as part of the “normalization” of Fed lending. He said a move in the discount rate won’t signal any change in the outlook for monetary policy.

“The Fed has been laying the ground work for how they will remove the monetary stimulus from the system,” said Andrew Busch, a global currency strategist at Bank of Montreal in Chicago. “It’s all baby steps in this path to normal monetary conditions.”

Futures trading in Chicago yesterday showed a 49 percent chance that the Fed will raise its target lending rate by at least a quarter-percentage point by its September meeting, up from 43 percent a week ago.

Brazil’s real fell yesterday as much as 1.6 percent to 1.8732 against the dollar, the biggest decline since Feb. 4, after China ordered banks to set aside more deposits as reserves for the second time in a month as part of an effort to cool growth in the world’s fastest-growing economy.

The reserve requirement will rise 50 basis points, or 0.5 percentage point, effective Feb. 25, the People’s Bank of China said on its Web site on Feb 11. The existing level is 16 percent for the biggest banks and 14 percent for smaller ones