The euro headed for its biggest weekly drop against the dollar since January as concern Greece will fail to secure financial assistance from the European Union reduced demand for the currency.
The Swiss franc rose against the euro for a sixth consecutive day in its longest stretch of gains since December 2008. Sterling dropped against all of its major counterparts after the Bank of England policy maker Andrew Sentance said Britain may return to recession.
The euro fell 0.5% to $1.3543 U.S. at 8:28 a.m. in New York, from $1.3608 U.S. yesterday. It has lost 1.5% this week, the most since a 2% drop for the five days ended Jan. 29. The euro decreased 0.2% to 122.69 yen, from 122.99. The dollar traded at 90.55 yen, compared with 90.39.
The 16-nation euro was headed for a weekly drop against most of its major counterparts as Greece’s Prime Minister George Papandreou said yesterday he may turn to the International Monetary Fund to overcome his nation’s debt crisis unless E.U. leaders agree to set up a lending facility at a March 25-26 summit.
French President Nicolas Sarkozy and European Central Bank President Jean-Claude Trichet dismissed the IMF option, saying it would show the EU can’t solve its own crises.
German Chancellor Angela Merkel told parliament on March 17 the IMF may be the only answer to Greece’s fiscal problems. Greece needs to raise about 10 billion euros to refinance bonds due on April 20 and May 19. Papandreou said the nation can’t afford to keep paying current market rates.
The euro will remain weak through 2011, bottoming out below $1.20 U.S. in the middle of the year as fiscal tightening restricts the region’s inflation and the ECB holds off from raising interest rates, according to BNP Paribas SA.
The common currency will trade at $1.22 U.S. by the end of March 2011 and at $1.19 U.S. by the end of June of that year, BNP analysts led by London-based Hans-Guenter Redeker wrote in a note today, cutting their forecasts. The bank’s previous predictions for the euro were $1.30 U.S. and $1.32 U.S., respectively.
European equity funds posted net outflows of $1.06 billion U.S. in the week ended March 17, the biggest withdrawals since May 2009, EPFR Global said today in a statement.
The Swiss franc has strengthened 1.4% against the euro this week in its biggest five-day gain since December 2008. The Swiss National Bank Governing Board member Jean-Pierre Danthine said yesterday policy makers can’t keep borrowing costs at almost zero for an extended period of time and maintain purchases of foreign currencies indefinitely.
The SNB, led by Philipp Hildebrand, has sold francs over the past year to combat the threat of deflation and support an export-led recovery. The franc advanced as much as 0.6% today to 1.4319 per euro, the strongest since October 2008.
Sterling dropped for a second day against the dollar and fell for the first time in four days versus the euro after Sentance told CNBC that there’s "some risk of a double-dip recession" and that the country will need a "substantial" fiscal tightening.
Bank of England policy makers voted unanimously to hold their bond buying program at 200 billion pounds ($303 billion U.S.), minutes of a policy meeting showed this week.
The pound dropped 0.6% to $1.5158 and slid 0.2% to 89.49 pence per euro.
New Zealand’s dollar led gains this week against the U.S. currency before a report forecast to show its economy grew the most since December 2007.
The currency, called the kiwi, headed for its biggest weekly gain since December versus Australia’s dollar. The kiwi has appreciated 0.9% since March 12, trading today at 1.2926 per Australian dollar.
The New Zealand economy expanded 0.8% last quarter, the fastest since the last quarter of 2007, according to the median forecast of 13 economists in a Bloomberg News survey before a March 25 report.
The Reserve Bank of New Zealand will raise its target rate by 169 basis points over the next year, compared with 117 points in Australia, according to Credit Suisse Group AG indexes based on swaps trading.
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