Tokyo : The euro dropped for a second day against the dollar as signs that Europe's economic recovery is waning damped demand for the single currency.
The euro fell versus 13 of its 16 major counterparts after Germany's Der Spiegel magazine said social tensions are rising in Greece as austerity measures hurt the economy. The yen slid against the dollar on speculation Japan will weaken the currency and after data showed domestic investors bought a record amount of foreign debt last week.
"The impact of the fiscal adjustment in Europe is real and will be felt for years," said Antje Praefcke, a currency strategist at Commerzbank AG in Frankfurt. "Without big data releases, rumours and magazine articles may hurt the euro but won't push it out of the $1.27 [Dh4.67] to $1.30 range."
The euro fell to $1.2809 as of 8.20am in London from $1.2853 on Wednesday in New York. It reached $1.2734 on August 16, the weakest level since July 21. The yen slid to 85.80 per dollar from 85.46. The euro traded at 109.90 yen from 109.84 yen.
Europe's currency weakened before a German report that economists said will show growth in producer prices slowed last month. The producer price index rose 0.1 per cent in July after gaining 0.6 per cent the previous month, according to a Bloomberg survey.
The euro also declined as the Stoxx Europe 600 Index slipped for a second day, losing 0.3 per cent.
Fundamentals
"The fundamentals of most of the euro zone haven't really improved," said Tsutomu Soma, a currency dealer in Tokyo at Okasan Securities Co. "The bias is for the euro to be sold."
Austerity measures in Greece are dragging down the economy and have driven the unemployment rate to as high as 70 per cent in some areas, Der Spiegel reported on its website. The International Monetary Fund projects Greek joblessness at 12 per cent this year and 13 per cent in 2011.
The slide in the euro accelerated as Japanese margin traders placed automatic orders to sell the currency if it declined to a certain level, said Takashi Kudo, general manager of market information service at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. "A series of stop-loss orders were triggered after the euro failed to hold the $1.2850 mark," Tokyo-based Kudo said.
Foreign bonds
The yen weakened after Ministry of Finance data showed Japanese investors scooped up a net 2.17 trillion yen ($25.5 billion) in foreign bonds and notes, the most since the data began in 2001.
The currency also lost ground on speculation authorities will act to temper further gains after the yen reached a 15-year high versus the dollar this month.
The Bank of Japan may increase the amount of a corporate loan programme to 30 trillion yen ($351 billion) from 20 trillion yen, the Sankei newspaper reported, without saying where it obtained the information. The BOJ may also extend the duration of the loan to six months from three months, Sankei said.
"Wariness that the Japanese government may invoke some policies are stoked each time the yen comes closer to the 85 level," said Shinichi Hayashi, a dealer in Tokyo at Shinkin Central Bank, the central institution for Japan's financial cooperatives. "This policy outlook may slow down the pace of appreciation."
Japan's Finance Minister Yoshihiko Noda said yesterday he will continue to monitor financial markets closely.