May 24 (Bloomberg) -- The euro traded close to the weakest level since July 2010 versus the dollar as German business confidence slid and manufacturing shrank, stoking concern fallout from the debt crisis is spreading.
Europe’s 17-nation currency dropped for a third day versus the yen as European leaders clashed over joint bond sales at a summit and offered no immediate relief for recession-wracked Spain. The Dollar Index advanced as speculation the turmoil is deepening increased demand for the U.S. currency.
“The euro crisis is back in full speed hitting high- yielding assets and the sentiment against the euro,” said Bernd Berg, a currency strategist at Credit Suisse Group AG in Zurich.
The euro depreciated as much as 0.5 percent to $1.2516, the least since July 6, 2010, before trading little changed at $1.2581 at 6:28 a.m. New York time. The European currency dropped 0.1 percent to 99.86 yen, after tumbling 1.4 percent yesterday. The dollar slipped 0.1 percent to 79.39 yen.
Merkel laid out the German position that “much stronger economic cooperation” in the region is needed before euro bonds can be issued, speaking to reporters in Brussels after the summit. European Union President Herman Van Rompuy said leaders are not under any pressure to introduce euro bonds.
“When you clear away all the chatter, this problem is about growth,” said Peter Rosenstreich, chief currency analyst at Swissquote Bank SA in Geneva. “With growth, things are manageable. Without it, it’s tough. Data out of Germany today suggested after three years, there is very little confidence in European Union leaders’ ability to find a solution.”
Luxembourg Prime Minister Jean-Claude Juncker, who chairs meetings of euro-area finance ministers, said he didn’t ask the 17 members of the currency bloc to prepare contingency plans for the possibility of Greece leaving the euro. An inconclusive May 6 ballot in Greece raised speculation it will abandon austerity measures imposed on the nation after two bailouts and have to exit the euro. New elections are scheduled for June 17.
“More and more market participants are hedging their portfolio by shorting the euro,” Berg said. “Therefore we see a further built up of short euro positions versus the dollar.” A short position is a bet an asset will fall.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- rose to a record 173,869 on May 15, from net shorts of 143,984 a week earlier, data from the Washington-based Commodity Futures Trading Commission showed.
The euro fell 5 percent in the past six months, making it the worst performer among 10 developed-nation currencies, according to Bloomberg Correlation-Weighted Indexes. The dollar gained 1.7 percent during the period.
A German index based on a survey of purchasing managers in the manufacturing industry declined to 45 this month from 46.2 in April, London-based Markit Economics said in a report today. Economists had forecast a reading of 47, according to the median estimate in Bloomberg News survey. The Munich-based Ifo institute said its German business climate index dropped to 106.9 in May from 109.9 a month earlier. Economists predicted 109.4, another survey showed.
“The euro remains in a bearish trend,” said Callum Henderson, global head of currency research at Standard Chartered Plc in Singapore. “There needs to be a greater focus on growth, but at the same time, there also has to be a credible long-term plan for fiscal and debt consolidation throughout the region. At the moment, you have neither,” he said.
The Dollar Index rose 0.1 percent to 82.103 after climbing to the highest since September 2010.
“It seems likely that the dollar will be reasonably well bid,” said Michael Turner, an economist at RBC Capital Markets Ltd. in Sydney. “People are concerned about what the implications of a Greece exit from the euro zone might be.”
The Dollar Index tracks the greenback against the currencies of six U.S. trading partners.
The gauge “maintains the overall bullish bias and risk for additional upside,” Niall O’Connor, a technical analyst in New York at JPMorgan Chase & Co., wrote in a research note yesterday. The gauge may rise to 82.591, a 61.8 percent retracement of its decline from June 2010 to May 2011, O’Connor wrote, citing Fibonacci analysis.
Fibonacci analysis is based on the theory that prices increase or decline by certain percentages after reaching a new high or low.
New Zealand’s dollar gained 0.5 percent to 75.36 U.S. cents after touching 74.57 yesterday, the lowest since Nov. 28. Its 14-day relative strength index against the U.S. currency was 27, below the 30-level that some traders see as a sign that an asset may be about to reverse direction.