Euro falls for 3rd straight day on Greece, rate view
NEW YORK: The euro fell for a third straight day against the dollar on Friday, with more losses viewed as likely, weighed down by wranglings about how to handle Greece's debt crisis and diminished expectations about euro zone rate hikes.
The euro was on track for its worst daily performance in a month and was down 1.9 percent for the week.
A broad-based flight to safety stemming from worries about the global economic recovery also dragged down the euro and other currencies that typically rise in times of increased risk appetite.
Greece also heightened the markets' aversion to risk as investors received mixed messages about the progress of financial assistance to the debt-ridden country.
Germany stuck to its demand that private investors contribute to a second bailout, even as the European Central Bank was opposed to any form of debt restructuring.
ECB President Jean-Claude Trichet again indicated on Thursday the bank would not roll over its own Greek bond holdings. He also suggested that the ECB might not be willing to accept Greek bonds as collateral from banks seeking loans if some form of restructuring made the bonds ineligible under ECB rules.
"The market has seen a broad sell-off in risk, and I have to blame Trichet, who on Thursday pretty much assured Greek debt restructuring fails by stating the ECB would not take part in a rollover of Greek debt so long as that event was a credit event or event of default," said David Gilmore, a partner at FX Analytics, in Essex, Connecticut.
In early afternoon trading, the euro fell as low as $1.43220 on trading platform EBS and was last at $1.43437, down 1.1 percent on the day.
Against the yen, the euro fell as low as 114.940, its weakest level since May 27. It last traded at 115.200, down about 1.2 percent on the day. "Until some clarity about Greece emerges, the euro will probably continue to suffer," said Mark McCormick, currency strategist at Brown Brothers Harriman in New York.
Greece's bond yields rose by 60 basis points, with the short end of the curve leading the sell-off. Reuters calculations from Markit show 5-year credit default swaps reflect a 74 percent default probability based on a 41 percent recovery rate. See
The uncertainty should continue next week, analysts said, with a high risk that consensus is not reached before a June 20 euro-zone finance ministers' meeting, which will discuss ways to secure more funding for Greece. That was a pre-condition for a vital disbursement of the next tranche of its current bailout in July.
"Seems like a slow motion Lehman event is again unfolding in the euro zone, and policy response is not going to get in front of the problem Helmets are mandatory next week despite the hot weather," said FX Analytics' Gilmore.
Apart from the Greek drama, reduced rate expectations also hurt the euro.
The ECB on Thursday kept its 2012 inflation forecast unchanged, suggesting the pace of euro-zone interest-rate hikes may be slower than previously thought.
Trichet cemented the market's view that the ECB will raise rates in July, but another hike is not priced into the market until early 2012.
The dollar was little changed against the yen at 80.32 yen, which tracks the greenback against a basket of currencies, rose 0.9 percent to 74.844.
Copyright Reuters, 2011