The euro fell, snapping a two-day gain versus the dollar and yen, on concern issues of collateral required by some nations to participate in a Greek bailout will hinder agreement at a meeting of European officials today.
The 17-nation currency trimmed its first weekly advance this month versus the greenback after Finnish Finance Minister Jutta Urpilainen said it was unlikely any agreement on collateral would be reached at the gathering in Wroclaw, Poland. ECB President Jean-Claude Trichet yesterday pressed euro-area governments to take decisive action to halt the debt crisis and show “unity of purpose.” The Dollar Index rose before a report forecast to show U.S. consumer confidence increased.
“There is some skepticism still with respect to whether or not there will be any real solution apparent from today’s meeting,” said Jane Foley, a senior foreign-exchange strategist at Rabobank International in London.
“There are a lot of people wanting to move out still of euro longs and square up. They are seeing the better levels in euro-dollar as a way to do that.”
The euro weakened 0.5 percent to $1.3809 at 10:01 a.m. in London, paring its weekly advance to 1.1 percent. The shared currency fell 0.5 percent to 105.93 yen, and dropped 0.4 percent against the pound to 87.46 pence. The dollar was little changed at 76.72 yen.
The debt overhang is taking its toll on the wider economy, the European Commission said yesterday. It cut its growth forecast to 0.2 percent for the third quarter and 0.1 percent in the fourth, down from earlier projections of 0.4 percent for both periods.
European ‘Scorn’
Trichet’s comments came as Europe’s challenges in stemming the debt crisis were highlighted by disputes over collateral to underpin Greece’s rescue loans and German objections to altering European treaties.
“We’re going to negotiate about it, but unfortunately I don’t see that we can find a solution” today, Finland’s Urpilainen told reporters before the meeting, which is also being attended by U.S. Treasury Secretary Timothy Geithner.
“There’s already a lot of scorn coming out of Europe, like we don’t need you to tell us what to do,” said Geoffrey Yu, a foreign-exchange strategist at UBS AG in London. European officials “really need to be absorbing ideas, rather than dismissing them outright.”
The euro is likely to trade between $1.38-$1.40 over the next few days, Yu said.
Extra Dollars
The euro jumped the most in a month yesterday after the Frankfurt-based ECB said it will coordinate with the Federal Reserve and other central banks to conduct three separate dollar liquidity operations to ensure lenders have enough of the currency through the end of the year.
The cost of converting euro payments into dollars, measured by the three-month cross-currency basis swap, declined to 84 points below the euro interbank offered rate, or Euribor, in London from 107.2 points a week ago.
“Banks are short of liquidity because people don’t trust the economic policy structure in Europe,” Richard Yetsenga, global head of foreign-exchange strategy at Australia & New Zealand Banking Group Ltd., said on Bloomberg Television. “This dollar-swap helps but is not going to be enough to stabilize things just yet. We need something bigger.”
The Dollar Index rose for the first time in five days on optimism a recovery in consumer confidence will attract investors to U.S. assets.
A preliminary reading for September will show the Thomson Reuters/University of Michigan index of consumer sentiment rose to 57 this month from 55.7 in August, according to economists surveyed by Bloomberg before today’s report.
No ‘Double Dip’
“We’re not expecting the U.S. economy to return to double- dip recession,” said Thomas Averill, a director at foreign- exchange and interest-rate risk management company Rochford Capital in Sydney.
The Dollar Index, which measures the greenback against the currencies of six major U.S. trading partners, gained 0.4 percent to 76.585.
The greenback has appreciated 3.3 percent in the past month, the best performance after the yen’s 3.4 percent gain among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro has fallen 1.5 percent.
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