NEW YORK, May 11 - Renewed worries about Greek
debt and another sell-off in the commodities market drove the
euro sharply lower on Wednesday, with more losses likely as
investors grow skittish over the currency's sudden retreat.
The euro zone common currency dropped to a three-week low
against the U.S. dollar, firmly breaking below its 50-day
moving average around $1.43, which traders are likely to take
as a sign of more losses to come.The euro's drop, just a week after it hit a 17-month high
versus the dollar above $1.49, accelerated after steep losses
in stocks and commodities led to a stampede for the safe-haven
dollar. Speculation over whether Greece will receive more bailout
funding kept risk appetite volatile as investors continued to
price in a high probability that the country will eventually
need to restructure its debt.
A senior Greek government official said Tuesday it expects that a June audit of its budgets will show it needs a new financial-aid package of nearly €60 billion to cover its needs stretching into 2013. The Greek finance ministry said efforts are under way to find a realistic solution, but "there are no specifics yet regarding the size or details of a package."
Hope for a deal helped pull Greek bond yields lower. A final decision won't be made until June, after the International Monetary Fund and the European Union complete a review of Greece's ability to handle its debt, the senior Greek official said.
Talk over how to address Greece's problems, and those of other fiscally weak European countries, has dragged on for months, with only sporadic action. Analysts say that by not acting promptly, politicians are delaying the inevitable unless they can come up with a more convincing plan to ensure that countries such as Greece don't default. Financial markets have judged the support measures put in place so far as inadequate, and even counterproductive, in as much as they have shrunk the economies they were meant to help.
According to the Greek official who discussed the second aid deal Tuesday, possible measures being considered include allowing the European Financial Stability Facility—the euro-area rescue fund—to buy Greek bonds in the primary market.
Greece has been expected to come back to the market next year, when it faces €33 billion of bond redemptions. Without more action from the EU and IMF, that isn't likely.
