Dollar Weakens Against Euro But Off Lows



Euro Touches Two-Week Low Versus Dollar as S&P Cuts Greece’s Credit Rating

By Allison Bennett - May 9, 2011 12:49 PM CT

The euro touched the lowest level against the dollar in more than two weeks after Standard & Poor’s cut Greece’s credit rating, renewing concern the region’s debt crisis is worsening.

Norway’s krone rallied against all of its most-traded counterparts as commodities rebounded from the worst week since 2008, with crude oil gaining. The 17-nation currency rose earlier as a report showed exports in Germany Europe’s largest economy, jumped in March, bolstering the case for higher interest-rates in the euro region.

“This downgrade is furthering the reality that we’re getting closer to the point of default,” said David Man, regional head of research for the Americas at Standard-Chartered in New York. “People may use this as a reason to take seriously that it could be a longer wait for a rate hike out of Europe, which would be euro-negative as well.”

The euro traded at 1.4308 USD/EUR at New York close, compared with 1.4316 USD/EUR on May 6, after touching 1.4255USD/EUR, the lowest level since April 19. The currency earlier rose 0.9% 1.4442 USD/EUR. The euro slid 0.2% to 115.20 JPY/EUR, from 115.44 JPY/EUR, after rising 0.9 percent to 116.48 JPY/EUR. The dollar fetched 80.52 JPY/USD, compared with 80.63 JPY/USD.

Relative Strength

The seven-day relative strength index of the euro versus the dollar fell today to 23.25, the lowest level since Nov. 30, after readings above 70 for seven days ended May 4. Readings above 70 indicate a currency’s rally may be hard to sustain, while figures below 30 signal an asset may have depreciated too quickly and may be poised for a reversal.

Norway’s krone rallied 0.6% to 5.4976 NOK/USD in the best performance among the most-traded currencies as crude rose after its biggest weekly drop since 2008.

The Canadian dollar fluctuated as the gain in crude oil offset S&P’s downgrade of Greece. The loonie traded at .9649 CAD/USD after appreciating 0.6%.

Crude Oil Gain

Crude oil for June delivery rose 3.8% to USD 100.86 a barrel. Norway is the world’s seventh-largest exporter of crude oil, while Canada is the biggest exporter of the raw material to the U.S.

“As the downgrade has put a damper on risk for the near term, commodities have stayed relatively resilient in the face of all of this,” said Boris Schlossberg, director of research at the online currency trader GFT Forex in New York. “You are still seeing some relatively good data out of the euro-zone, so we are living in a bifurcated world.”

The euro rose earlier versus most of its most-traded counterparts as a government report showed Germany’s exports jumped 7.3% in March from a month earlier. The median forecast of 10 economists in a Bloomberg News survey was for a 1.1% increase.

Greece’s credit rating was cut to B from BB- by S&P, which said further reductions are possible, with private investors at risk if maturities are extended on the nation’s emergency-aid package. Another rating cut would make Greece the lowest-rated country in Europe as today’s move left it even with Belarus after the fourth reduction by S&P since April 2010.

‘Short-Term Headwind’

“It raises the stakes just that little bit more, in view of the ongoing debate on how Greece is going to deal with its ongoing problems,” said Jeremy Stretch, executive director of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “It’s another short-term headwind for the euro to take onboard. International investors sitting on the outside looking in probably regard it as another reason to fight shy of the euro.”

Officials in Athens spent the weekend denying speculation that Greece was headed out of the euro or into default after a gathering of finance ministers and a Spiegel magazine report that Greece was considering a return to the drachma.

The euro’s decline began May 5, when the European Central Bank held its main refinancing rate unchanged at 1.25% and ECB President Jean-Claude Trichet refrained from using the phrase “strong vigilance” on higher prices, which might have signaled a June boost. Trichet instead said inflation risks will be watched “very closely.”

Europe’s currency has still risen 2.4% this year, according to Bloomberg Correlation-Weighted Currency Indexes, a measure of the currencies of 10 developed nations. The yen has weakened 4.2%, while the dollar is down 4.7%.

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