Euro falls to lowest since April 2006
The euro slid to the lowest level in more than four years against the dollar on concern European measures to reduce fiscal deficits will undermine the 16-nation currency region’s recovery.
The shared currency fell for a third day versus the yen before euro-area finance ministers meet in Brussels today as European Central Bank President Jean-Claude Trichet called for a “quantum leap” in how member states’ budgets are controlled. The pound fell to a 13-month low after U.K. Prime Minister David Cameron said his government uncovered “very bad” spending decisions by the previous administration and as a report showed London home prices fell for the first time this year.
“There’s a loss of confidence in the euro,” said Paul Robinson, a currency strategist at Barclays Capital in London. “Investors are asking if the euro-zone crisis is similar to the 2008 banking crisis.”
Trichet called for reform of the way euro-region countries determine spending and defended his decision to buy bonds from debt-saddled countries such as Greece and Portugal.
“There is a need for a quantum leap in the governance of the euro area,” Trichet said in an interview with Der Spiegel magazine published on the ECB website. “There need to be major improvements to prevent bad behavior, to ensure effective implementation of the recommendations made by peers and ensure real and effective sanctions in the case of breaches,” he said.
The common currency fell 3.1pc last week against the greenback as speculation grew that the euro zone will break up.
Futures traders last week increased bets to a record that the euro will fall following the €750bn bailout to contain a sovereign-debt crisis.
The number of wagers made by hedge funds and other large speculators betting on a decline in the 16-nation currency rose on May 11, reaching 113,890 contracts more than those anticipating a gain, according to Commodity Futures Trading Commission data. It was the third consecutive week that the amount climbed to a record.
‘Tough Austerity Measures’
“The fact that European leaders have failed to restore confidence in the single currency is worrying,” Khoon Goh, a senior economist at ANZ National Bank Ltd. in Wellington, wrote in a note to clients today. “Markets are now focusing on the tough austerity measures that will come and the impact that will have on the euro-zone economy.”
The pound weakened for a fourth day against the dollar as Britain’s biggest property website said the average house price in the U.K. capital fell 0.4pc in May from April to £420,203 (€492,946). In the year, prices rose 5.7pc, Rightmove said in an e-mailed statement.