June 4 (Bloomberg) -- The euro was within two cents of its weakest level versus the dollar in almost two years on speculation Europe’s leaders will struggle to agree on how to resolve the sovereign debt crisis, harming global growth.
The 17-nation currency earlier slid against the dollar and the yen as pressure built on German Chancellor Angela Merkel to back additional measures such as joint debt issuance in the bloc. Merkel and Finance Minister Wolfgang Schaeuble have urged Spain to accept an international bailout, Der Spiegel magazine reported, without saying where it obtained the information.
“Over the weekend there were a couple of pieces of news that are putting pressure on the euro, like Germany urging Spain to take money,” said Lutz Karpowitz, a senior foreign-exchange strategist at Commerzbank AG in Frankfurt, who forecasts the currency will trade at about $1.20 at the end of the year. Euro bonds “could only ever be a very-long-term solution. It will take years to implement,” he said.
The euro was little changed at $1.2430 at 7:30 a.m. New York time. It fell to as low as $1.2288 on June 1, the weakest level since July 1, 2010. Europe’s shared currency was at 97.08 yen from 97.01 on June 1, when it reached 95.60, the least since November 2000. The dollar also little changed at 78.10 yen.
Spanish Prime Minister Mariano Rajoy said on June 2 that leaders should reinforce efforts to protect euro-area banks and added his voice to calls for a more robust “banking union.” On the same day Merkel toughened her opposition to so-called euro bonds telling members of her party in Berlin that “under no circumstances” would she agree to German-backed shared issuance of the securities.
Unsuitable Measure
Germany views jointly issued bonds in the euro area as an unsuitable measure to overcome the debt crisis at this time, government spokesman Steffen Seibert told reporters today in Berlin.
Futures traders boosted bets to a record high that the euro will depreciate against the dollar, according to data from the Commodity Futures Trading Commission on June 1.
The difference in the number of wagers on a decline in the shared currency compared with those on a gain, known as net shorts, was 203,415 in the five days ended May 29, the most since the euro’s inception in 1999. It was the third record in as many weeks.
“Scope for short covering is growing,” Mitul Kotecha, head of global currency strategy in Hong Kong at Credit Agricole Corporate & Investment Bank, wrote in an e-mailed note today. Short covering is when investors end bets an asset will decline.
The euro may face resistance around $1.2505, Kotecha wrote. Resistance is a level where sell orders may be clustered.
The dollar snapped a three-day drop against the yen after Japanese Finance Minister Jun Azumi pledged on June 1 to take “decisive action” on his nation’s currency should “excessive moves” persist. Azumi declined to comment on whether Japan has intervened in the currency market at a press conference today.
Japan’s Vice Finance Minister for International Affairs Takehiko Nakao said today he discussed currencies with Bank of Japan Executive Director Hiroshi Nakaso as part of an exchange of views on global markets.
The greenback has advanced 3.1 percent this year, the best performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen has gained 1.3 percent, while the euro declined 1.6 percent.
Dollar Index
China’s non-manufacturing purchasing managers’ index fell to 55.2 in May from 56.1 in April, the National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday. That’s the lowest reading since March 2011 when the federation started seasonally adjusting the data.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, was little changed. It fell 0.3 percent on June 1 after after a report showed U.S. payrolls climbed by 69,000 last month. The jobs figure was lower than the most pessimistic forecast in a Bloomberg News survey. The jobless rate rose to 8.2 percent from 8.1 percent.
In Australia, interest-rate swaps indicate better-than-even chances the Reserve Bank of Australia will lower its 3.75 percent overnight cash-rate target to 3.25 percent tomorrow and to a record 2.25 percent by November.
Net shorts for the Australian dollar also climbed to an all-time high last week, rising to 35,527. The so-called Aussie dollar was little changed at 97.01 U.S. cents today after dropping as much as 0.8 percent to 96.28.
