Euro Falls to 3-Month Low on Greece; Aussie Breaches pari

Bloonberg: The euro fell to its lowest level in more than three months against the dollar as a leadership vacuum in Greece prompted European officials to weigh prospects for the currency union’s first-ever departure of a member state.

The 17-nation currency slid for a second day versus the yen as Greek President Karolos Papoulias prepared for more talks with political leaders on forming a unity government. Euro-area industrial production unexpectedly fell in March, the European Union said. The Dollar Index (DXY) rose for 11th day as the debt crisis boosted demand for safer assets. Australia’s dollar fell below parity with the greenback for the first time this year.

“Greek political tension is adding further pressure on the currency,” said Henrik Gullberg, a foreign-exchange strategist at Deutsche Bank AG in London. “If they opt for another election, the market is going to see it as a referendum whether the country would like to remain in the euro zone or not.”

The euro fell 0.3 percent to $1.2875 at 10:34 a.m. in London after sliding to $1.2861, the weakest level since Jan. 23. It dropped 0.2 percent to 103.06 yen. The dollar strengthened 0.2 percent to 80.05 yen.

Alexis Tsipras, who heads Greece’s Syriza party, won’t attend today’s meeting, according to an e-mail from the Athens- based party. Syriza, which is against the bailout, rejected a unity government last week following inconclusive elections on May 6. Greece may face another vote unless leaders can agree on a new coalition.

 

Greece Standoff

The standoff has reignited concern the country will renege on pledges to cut spending under the two bailouts negotiated since May 2010, and, ultimately, leave the euro area. The region’s finance ministers are set to meet at 5 p.m. in Brussels and may discuss aid for Greece.

A Greek withdrawal “is not necessarily fatal, but it is not attractive,” European Central Bank Governing Council member Patrick Honohan said in Tallinn, Estonia, on May 12.

The euro also weakened as a report today showed industrial production in the region unexpectedly contracted in March, as lower output in countries from Spain to France offset gains in Germany.

Production in the 17-nation euro area slipped 0.3 percent from February, when it advanced 0.8 percent, the EU statistics office in Luxembourg said today. Economists had forecast a gain of 0.4 percent, the median of 34 estimates in a Bloomberg News survey showed. From a year earlier, production declined 2.2 percent.

German Chancellor Angela Merkel’s Christian Democratic Union party received its lowest share of the vote since World War II in a North Rhine-Westphalia ballot yesterday. The state is Merkel’s biggest electoral test this year before the federal vote due in the second half of 2013.

 

Aussie Falls

Australia’s dollar dropped below parity with its U.S. counterpart amid concern that Greece will leave the euro bloc, curbing demand for higher-yielding currencies.

“Greece’s exit from the euro is becoming more and more a mainstream discussion, and this is potentially destabilizing for markets,” said Emma Lawson, a currency strategist in Sydney at National Australia Bank Ltd. (NAB) “In this generally risk-off environment, the risk is to the downside in the Aussie.”

Australia’s dollar fell 0.4 percent to 99.78 U.S. cents after sliding to 99.63 U.S. cents, the lowest since Dec. 20. New Zealand’s currency declined 0.7 percent to 77.76 U.S. cents.

The Dollar Index extended its streak of increases to the longest since Bloomberg began tracking the gauge in 1996. The index, which IntercontinentalExchange Inc. uses to measure the currency against those of six U.S. trade partners, rose 0.3 percent to 80.516.

 

‘In Vogue’

Haven currencies such as the greenback “are very much in vogue,” said Mike Jones, a currency strategist at Bank of New Zealand in Wellington. “There’s some good reasons at the moment to buy the dollar.”

The Swedish krona fell 0.8 percent to 7.0102 per dollar, weakening through 7 for the first time since Jan. 16.

The euro may extend its decline toward $1.2828 after falling below its 61.8 Fibonacci retracement level at $1.2954 last week, Bank of Tokyo-Mitsubishi UFJ Ltd. wrote in a report.

The $1.2828 level is the 76.4 percent retracement of the euro’s advance from this year’s low of $1.2624 on Jan. 13 to a high of $1.3487 on Feb. 24, according to data compiled by Bloomberg. Fibonacci analysis is based on the theory that prices increase or decline by certain percentages after reaching a new high or low.

The euro has weakened 4 percent in the past six months, making it the worst performer, according to Bloomberg Correlation-Weighted Indexes which track 10 developed-nation currencies. The dollar rose 2.4 percent, and the yen dropped 1.8 percent in the period. The Aussie declined 0.2 percent.

reporters on this story: Anchalee Worrachate in London