April 28 (Bloomberg) -- The euro traded near a one-year low versus the dollar on concern debt problems will spread across Europe after Standard & Poor’s lowered Greece’s debt to junk and cut Portugal’s rating by two steps.
The common currency, which tumbled the most in a year against the dollar yesterday, neared a five-week low versus the yen as European Central Bank President Jean-Claude Trichet prepares to meet German policy makers after they showed reluctance to bail out Greece. The pound was near a one-week low against the yen on concern next week’s election will create a U.K. government without the parliamentary support needed to trim the biggest budget deficit in the Group of Seven nations.
“With sovereign problems showing signs of contagion, the euro is losing its allure as an alternative currency to the dollar,” said Akio Yoshino, chief economist in Tokyo at Societe Generale Asset Management (Japan) Inc. “The currency may test the $1.30 mark sooner rather than later.”
The euro traded at $1.3192 as of 10:51 a.m. in Tokyo, after earlier dropping to $1.3145, the least since April 29, 2009, from $1.3175 in New York yesterday. The 16-nation currency was at 122.90 yen from 122.88 yen, after touching 122.37 yen, the weakest since March 25.
The pound was at 142.18 yen from 142.37 yen yesterday, when it reached 141.61, the weakest since April 20.
Trichet and International Monetary Fund Managing Director Dominique Strauss-Kahn will brief German parliamentary leaders in Berlin around noon today about the $60 billion aid package for Greece, which has met with opposition in Europe’s biggest economy. The joint European Union-IMF package would require Germany to stump up the biggest individual loan to Greece.
Rating Actions
“Why do we have to pay for Greece’s luxury pensions?” Germany’s biggest-selling tabloid newspaper, Bild Zeitung, asked on its front page yesterday. Almost 60 percent of Germans don’t want to help Greece, Die Welt newspaper reported, citing a survey of 1,009 people.
German Finance Minister Wolfgang Schaeuble asked Trichet and Strauss-Kahn to speak with lawmakers to “facilitate direct insight into the actions as they stand.” In Greece, Prime Minister George Papandreou will speak around 8 p.m. local time at a conference about the nation’s financial crisis.
Rating Downgrade
S&P lowered yesterday its long- and short-term sovereign credit ratings on Greece to BB+ and B, respectively, from BBB+ and A-2. Portugal’s long-term local and foreign currency sovereign issuer credit ratings were cut yesterday to A- from A+ at S&P, which cited “fiscal and economic structural” weakness. The outlooks on both were negative.
“The source of this bout of risk aversion is escalation in European sovereign debt concerns,” said John Kyriakopoulos, head of currency strategy at National Australia Bank Ltd. in Sydney. “Traders will be watching for a break below support around $1.3000 with sentiment toward the euro taking another leg down.”
Credit-default swaps on Greece’s government bonds climbed 114 basis points to 824.5, according to CMA DataVision. Those on Portugal’s debt rose 67 basis points to 383. Yields on Greece’s two-year notes surged above 18 percent, the highest level since at least 1998.
The pound fell after the Times of London newspaper said, citing a Populus poll, that the May 6 election would produce a hung Parliament. The prospect of political deadlock following the election has contributed to more than 5 percent decline in the pound versus the dollar this year.
“Given the huge budget deficit and unstable politics, it would not be a surprise if the pound became the next victim of sovereign woes following Greece,” said Norihiro Tsuruta, chief strategist in Tokyo at Shinko Research Institute Ltd., a unit of Japan’s second-largest banking group Mizuho Financial Group Inc.
Source : Bloombers
Authors : Yasuhiko Seki and Ron Harui
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