The euro dropped to its lowest level since 2001 against the yen and slid versus the dollar as speculation German Chancellor Angela Merkel is preparing for a Greek default curbed demand for the 17-nation currency.
The Dollar Index, which tracks the greenback against six U.S. trading partners, climbed to an almost seven-month high as fresh Greek austerity plans failed to calm financial-market stress in the euro area. The yen advanced at least 1 percent versus all of its 16 major peers. The Australian and New Zealand dollars weakened as stocks slumped and amid reports France's three largest banks may have their credit ratings lowered.
"There's always the underlying risk of a Greek default," said Chris Walker, a foreign-exchange strategist at UBS AG in London. "Markets are pricing that in right now."
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The euro dropped 1.5 percent to 104.43 yen at 9:23 a.m. in London after sliding to 103.90, the least since June 2001. It fell to $1.3495, the weakest since Feb. 15, before trading 0.5 percent weaker at $1.3594. The yen gained 1 percent against the dollar to 76.84 yen.
IntercontinentalExchange Inc.'s Dollar Index rose 0.3 percent to 77.436 after touching 77.784, the highest since Feb. 17.
The MSCI Asia Pacific Index of stocks slid 2.3 percent and the Stoxx Europe 600 Index dropped 2.7 percent. The yield on German bunds, Europe's benchmark government debt securities, fell to a record 1.71 percent, while rates on Italian and Spanish debt rose.
Germany's Plan
Officials in Merkel's government are debating how to shore up German banks in the event that Greece fails to meet the budget-cutting terms of its aid package and is unable to get a bailout-loan payment, three coalition officials said on Sept. 9. Merkel is due to hold talks on the debt crisis with European Commission President Jose Manuel Barroso today.
"It feels like Germany is preparing itself for a debt default," Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London, said in an interview. "Fatigue is setting in. Germany could be a first mover or other countries could be preparing too."
Germany will decide on a course of action after receiving the results of a Greek progress report, a government spokesman said, speaking on the customary condition of anonymity.
The Greek Cabinet voted yesterday to cut one month's wages from all elected officials and impose an annual charge on all property for two years, Finance Minister Evangelos Venizelos told reporters. The measures will help the country meet deficit targets of 17.1 billion euros this year and 14.9 billion euros in 2012.
Technical Analysis
The euro may fall to $1.3246, the lowest level since Jan. 17, after it pierced "key downside price levels," Royal Bank of Canada said yesterday, citing trading patterns.
The common currency may extend last week's 3.9 percent drop after making a "bearish triangle breakout" below $1.4364 and sustained losses below a key trendline dating back to June 2010 at $1.3989, George Davis, the bank's chief technical analyst in Toronto for debt and currency strategy, wrote in a report published yesterday.
BNP Paribas SA, Societe Generale SA and Credit Agricole SA, France's largest banks by market value, led European equity declines after two people with knowledge of the matter said the banks may have their credit ratings cut by Moody's Investors Service as soon as this week because of their Greek holdings.
Banks' Ratings
Moody's placed the ratings on review in June to examine "the potential for inconsistency between the impact of a possible Greek default or restructuring and current rating levels," the rating company said at the time. Cuts are likely as the review period concludes, said the people, who declined to be identified because the matter is confidential.
Societe Generale, France's second-largest bank, said it plans to sell 4 billion euros in assets by 2013 in an effort to reassure investors about its finances.
"Investor risk aversion is highly likely to increase further, given the multitude of risks surrounding Europe's situation this week," said Tohru Sasaki, head of Japan rates and foreign-exchange research at JPMorgan Chase & Co. in Tokyo. "Against this backdrop, the yen, and to a lesser extent the dollar, may strengthen."
The yen gained 1.7 percent today, the best performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Currency Indexes. The dollar, the second- best, advanced 0.7 percent.
Aussie Drops
The yen tends to appreciate during economic and financial turmoil because Japan's current account surplus makes it less reliant on foreign capital. The dollar benefits as the world's reserve currency.
The so-called Aussie fell to $1.0314, from $1.0470 on Sept. 9, and New Zealand's currency dropped 0.9 percent to 81.45 U.S. cents. The Canadian dollar fell to parity with its U.S. counterpart for the first time in a month, reaching as low as C$1.0009 per dollar.
The Australian dollar dropped to the lowest since Aug. 12 versus its U.S. counterpart after the Bureau of Statistics said the nation's trade surplus narrowed to A$1.83 billion in July. The median estimate in a Bloomberg News survey of 14 economists was for a surplus of A$1.9 billion.
Bloomberg News
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