Reuters: US Dollar Report: FOREX-Euro falls to almost two-year low on Greek fears

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FOREX-Euro falls to almost two-year low on Greek fears May 23rd 2012, 19:15 Wed May 23, 2012 3:15pm 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 level against the dollar in nearly two years on Wednesday on doubts 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 $1.2562, down 1 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 79.41. 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 slid 1.6 percent to 99.81, after falling as low as 99.50 on Reuters data. Link this Share this Digg this Email Reprints

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