Euro drops amid debt-crisis speculation

The euro fell the most in two weeks against the yen as Portugal’s bonds slumped after two ministers resigned from the government, reigniting speculation Europe’s sovereign-debt crisis is worsening.

The Japanese currency climbed against all of its 16 most- traded peers as borrowing costs also increased in Spain and Italy and a drop in risk appetite boosted demand for the yen as a haven. The pound rose after U.K. services expanded. The dollar remained lower versus the yen after U.S. companies boosted employment more than forecast.

“Any time you have any sort of political uncertainty or anything that’s going to disrupt political stability, it’s going to be risk-off for the underlying currency,” said Eric Viloria, senior currency strategist at Gain Capital Group LLC in New York, in a phone interview. “That’s weighing on the euro.”

The 17-nation currency fell as much as 1.5% to 128.65 yen, the biggest intraday decline since June 14, before trading at 129.35 at 9:51 a.m. in New York, down 1%. The euro lost less than 0.1% to $1.2974 after sliding 0.4% earlier. The yen gained 0.9% to 99.70 per dollar.

The pound jumped the most in four weeks versus the dollar after a report showed U.K. services growth accelerated in June, adding to evidence the economic recovery is gaining strength.

Britain’s currency advanced against all of its major peers except the yen as reports this week showed manufacturing grew at the fastest in more than two years last month and construction expanded. Mark Carney began as governor of the Bank of England on July 1 and will announce his first policy decision tomorrow.

‘Positive Surprise’

“The numbers were a positive surprise, and the pound is showing some strength,” said Lutz Karpowitz, a senior currency strategist at Commerzbank AG in Frankfurt. “These are levels at which you don’t talk about a weak economy anymore.”

Sterling rose 0.7% to $1.5257 and gained 0.7% to 85.01 pence per euro.

Portugal’s 10-year bond yield jumped above 8% for the first time since November after Prime Minister Pedro Passos Coelho told voters in a televised speech from Lisbon yesterday he’s trying to hold his government together.

Portuguese Foreign Affairs Minister Paulo Portas, leader of junior coalition party CDS, quit yesterday in protest at the government’s budget policy. Portas was the second minister to resign this week after finance chief Vitor Gaspar stepped down, saying his credibility had been compromised by the government’s failure to meet budget targets set by the European Union.

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