Wednesday May 23, 2012 - 20:38:52 GMT
Reuters - www.reuters.com
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FOREX NEWS - Euro hits nearly 2-year low on Greek exit fears
Wed May 23, 2012 4:22pm EDT
* Euro falls toward $1.25 as EU leaders meet
* EZ officials told members to prepare contingency plans
* Safe-haven dollar hits highest since September 2010
NEW YORK, May 23 (Reuters) - The euro slumped to its weakest
against the dollar in nearly two years on Wednesday on doubts
that a meeting of European leaders would calm fears of a
disorderly Greek exit from the euro zone.
Investors piled money into safe-haven instruments, driving
the U.S. dollar index to its strongest since September 2010. The
yen, which also tends to perform well during times of stress,
hit its highest level since February against the euro.
Euro zone officials have told members of the currency area
to prepare contingency plans in case Greece quits the bloc, an
eventuality which Germany's central bank said would be testing
but "manageable," three officials told Reuters.
An informal summit of European Union leaders on Wednesday is
expected to discuss growth-boosting measures and the idea of a
joint euro zone bond. Investors are not expecting any plan,
however, especially given Germany's strong opposition to joint
euro bonds.
"It's driven by fear," said Ronald Simpson, managing
director of global currency analysis at Action Economics in
Tampa, Florida. "Given the way that the European political
machine works, nobody is expecting anything to happen after
these guys sit down, drink beer and have dinner."
The euro fell to $1.2544 on Reuters data, its lowest
level since July 2010 as an option barrier at $1.26 was taken
out and real money investors, corporates and macro funds stepped
up euro selling. It was last at $1.2594, down 0.7 percent.
Axel Merk, portfolio manager of the $650 million Merk Hard
Currency Fund in Palo Alto, California, said the euro is mostly
selling off because of the "dysfunctional" process.
"We don't know what's going to happen and we don't know what
the European leaders want - there is no leadership," he said.
"The market is giving Greece way too much credit. I don't know
how it can engineer an exit without Germany's help."
Merk Hard Currency Fund eliminated its euro exposure as of
May 15.
In the options markets, one-month at-the-money implied
volatility jumped to 12.43 percent, its highest point
in more than four months. The cost of protecting against a euro
decline rose to 2.4 percent on Wednesday.
DOLLAR SURGES
Comments on Wednesday from euro zone leaders about Greece
staying in the euro zone only briefly helped the euro. French
President Francois Hollande said he will do all he can to
convince the Greeks to stay within the euro zone. Spain's Prime
Minister Mariano Rajoy said Greece's best option is to stay
within the bloc. .
"The whole problem of Greece, of fiscal retrenchment in the
euro zone, the lack of growth across the region, and the
reactive nature of the authorities are all ongoing," said
Richard Batty, investment director for multi-asset investing at
Standard Life Investments in Edinburgh, Scotland.
"We just don't think there's a quick fix. The unresponsive
nature of the authorities, with the markets seemingly forcing
authorities to action, to our mind is very unhealthy for the
euro zone."
Standard Life, which manages assets of around $240 billion,
has not owned European assets for some time.
Growing worries about Greece supported safe-haven assets and
currencies. Germany sold two-year government debt on which it
will pay no interest, its first zero-interest issue with such a
maturity.
The dollar index, which measures the dollar's value
against a basket of major currencies, rose to 82.221, its
strongest level since September 2010.
High-yielding currencies like the Australian and
New Zealand dollars fell sharply. The U.S. dollar also
advanced to a four-month high against the Swiss franc.
The yen also gained, with the dollar falling 0.7 percent to
79.47 yen. The Bank of Japan kept its monetary policy
unchanged, in line with most expectations, although a few
participants had been speculating the central bank could follow
up with new easing steps after its monetary easing in April.
The euro was off 1.3 percent at 100.09 yen after
falling as low as 99.50 on Reuters data.� Thomson Reuters 2011. All rights reserved.
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