Euro Weakens Versus Yen as European Leaders Prepare to Meet on Debt Crisis

Bloomberg

By Monami Yui and Candice Zachariahs - Jul 20, 2011 9:04 AM GMT+0300

The euro fell against the yen before French President Nicolas Sarkozyand German Chancellor Angela Merkel meet amid concern European leaders will fail to reach a solution to the region’s debt crisis at a summit tomorrow.

The dollar maintained a two-day gain against the Swiss franc after President Barack Obama endorsed deficit-cutting measures as a step toward raising the debt ceiling and avoiding default. South Korea’s won led gains in Asian currencies and the Singapore dollar climbed to a record as a rally in shares across the globe stoked demand for higher-yielding assets. The Australian dollar held onto yesterday’s advance before a report forecast to show sales of existing U.S. homes rebounded.

“The Europeans are too divided over what to do, so our expectations are pretty low for this meeting,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “We like selling the euro on rallies.”

The euro declined to 111.83 yen as of 7 a.m. in London from 112.07 yen in New York yesterday. The 17-nation currency was at $1.4142 from $1.4156. The dollar bought 82.45 Swiss centimes from 82.41 centimes yesterday. The Japanese currency traded at 79.07 against the greenback from 79.18.

Australia’s dollar was at $1.0714 from $1.0733, after it climbed 1.2 percent yesterday.

Euro-area leaders are preparing for the second meeting in a month to hammer out a solution to the Greek debt crisis, which pushed the euro to $1.3837 last week, the lowest since March. Sarkozy will dine with Merkel and will leave Berlin on the morning of July 21 to travel to Brussels for the debt summit, his office said in an emailed statement.

‘Spectacular Step’

European leaders are at odds with one another and with the European Central Bank over demands by Germany and Finland that private investors bear some of the burden of a new Greek bailout. While Merkel said yesterday the crisis can’t be resolved in “one spectacular step,” Greek counterpart George Papandreou said in an interview that the summit could be a “make-or-break moment” for the euro region.

Greece’s sovereign-debt crisis risks contaminating the rest of the euro region even if officials avert a default, the International Monetary Fund said yesterday.

Westpac’s Callow suggested investors sell the euro on advances above $1.4250 over the next few days.

Singapore Record

The South Korean won climbed 0.4 percent to 1,055.30 against the U.S. currency, according to data compiled by Bloomberg. The Singapore dollar reached S$1.2139 per dollar, an all-time high, before trading at S$1.2147.

The MSCI Asia Pacific Index of regional shares advanced 1 percent after the MSCI World Index rose 1.5 percent yesterday. The Thomson Reuters/Jefferies CRB Commodity Price Index climbed 0.8 percent.

Obama called the revival of the plan from the Gang of Six, a bipartisan group of U.S. Senators, “good news” that may help speed up negotiations on the deficit and raising the federal debt ceiling. He pledged this week to veto a Republican proposal to impose mandatory budget cuts. The government says it has until Aug. 2 before its ability to pay its debt expires.

Home Sales

Purchases of previously owned homes, which make up about 95 percent of the U.S. market, climbed 1.9 percent in June from May’s six-month low to a 4.9 million annual rate, according to the median projection of economists surveyed by Bloomberg News before a National Association of Realtors’ report today.

Federal Reserve Bank of Kansas City President Thomas Hoenig said yesterday the U.S. economy will continue to grow “at a modest pace” of 2.5 percent to 3 percent in 2011 and 2012.

“Even though the U.S. may print better data, the question is when does the U.S. raises rates,” said Tony Allen, global head of foreign-exchange trading in Sydney at Australia & New Zealand Banking Group Ltd. “As long as the news gets better, the Aussie can go up.”

Benchmark interest rates are 4.75 percent in Australia, compared with as low as zero in the U.S., attracting investors to the South Pacific nation’s higher-yielding assets.

To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net