World Crisis Online

By Catarina Saraiva and Allison Bennett – The euro fell the most since November against the yen and dropped from a 15-month high versus the dollar on concern a bailout for Greece may fail to prevent the first default by a country in the 17-nation currency region.

New Zealand’s dollar surged this week to a three-year high versus the greenback on speculation accelerating inflation won’t hamper the economy. The U.S. currency touched the lowest level this month versus the yen on bets the Federal Reserve will reaffirm after its April 26-27 meeting its plan to keep borrowing costs low to support the economic growth.

“The risk premium in the periphery has re-emerged,” said Mark McCormick, a currency strategist at Brown Brothers Harriman & Co. in New York. “People are becoming concerned with the probability of countries like Greece and Ireland having to potentially restructure their debt.”

The euro fell 2.3 percent to 119.96 yen yesterday, from 122.76 on April 8, in the biggest weekly decrease since a 2.5 percent drop in the five days ended Nov. 26. The euro depreciated 0.4 percent to $1.4430, from $1.4483, after rising above $1.45 for the first time since January 2010.

The dollar dropped 1.9 percent to 83.13 yen, from 84.76, after touching 82.96 this week, the lowest level since March 31.

Sweden’s krona advanced to a two-week high against the euro on speculation the Riksbank will increase its target lending rate by a quarter-percentage point to 1.75 percent on April 20. The krona appreciated 0.7 percent to 8.9243 versus the euro after touching 8.9241 yesterday, the strongest since April 1. The currency gained 0.3 percent to 6.1848 versus the dollar.

Canadian Dollar

The Canadian dollar slid from a three-year high versus the greenback, dropping for the first time since the week ended March 18. The Bank of Canada held its target lending rate at 1 percent at its meeting April 12 and said currency appreciation “could create even greater headwinds” for the economy.

The loonie slid 0.4 percent to 95.92 cents versus the greenback after touching 95.27 on April 8, the strongest level since November 2007.

The New Zealand dollar rallied as Finance Minister Bill English said yesterday in a Bloomberg Television interview that the nation’s accelerating inflation won’t hamper the economy. Reserve Bank Governor Alan Bollard said this week the economy will get a boost from higher farm export prices, which will underpin the nation’s currency and may stir inflation.

The kiwi appreciated 2.1 percent to 79.95 cents after touching 79.97 yesterday, the highest level since April 2008. The New Zealand dollar was little changed at 66.46 yen.

Greece’s Yield Spread

The extra yield investors demand to hold Greek 10-year debt instead of equivalent German securities widened to 10 percentage points, the most since before the euro’s debut in 1999. Greece’s 10-year yield climbed to a record high of 13.84 percent.

Germany’s Zeit newspaper reported April 14 that a restructuring of Greek sovereign debt may involve imposing losses of 50 to 70 percent on investors. Ireland’s credit rating was cut two levels by Moody’s Investors Service to the lowest investment grade as the government struggles to lower the budget deficit and restore economic growth.

“Increased worries about defaults in the periphery are weighing yet again on the euro,” said David Mann, New York- based head of research in the Americas at Standard Chartered.

Finland’s anti-euro bloc is set to win record support at tomorrow’s election, forcing the country’s biggest parties to take a tougher stance on bailouts as they try to woo voters tired of rescuing fiscal failures.

True Finns

Support for political groups opposed to euro-area rescues was 47.3 percent in the latest poll by Helsingin Sanomat, published April 12. The True Finns, whose leader Timo Soini said taxpayers in the Nordic country shouldn’t have helped bail out Greece or Ireland, has seen its support soar to 16.9 percent from 6.9 percent a year ago.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback versus the currencies of six major U.S. trading partners, fell 0.3 percent to 74.820 after touching 74.617, the lowest level since December 2007.

Fed Vice Chairman Janet Yellen said this week in New York that an increase in food and fuel costs will have only a temporary impact on inflation and consumer spending and warrants no reversal of record monetary stimulus.

The Fed will hold the target lending rate at zero to 0.25 percent at its meeting ending April 27, according to all of the economists in a Bloomberg News survey.

The yen rallied 2.3 percent to 86.67 versus the Canadian dollar on reduced demand for assets related to economic growth as China said inflation reached the fastest pace in more than two years, reviving speculation the world’s second-largest economy will cool growth.

“Chinese inflation backs expectations the People’s Bank of China is likely to tighten policy in the months ahead so that could mean slower global growth, which tends to unsettle investor appetite for risk and inspire demand for safety and the yen,” said Joe Manimbo, a market analyst in Washington at Travelex Global Business Payments, a currency-exchange network.