Euro drops against dollar, yen as Fitch sees orderly debt restructuring

The euro slid the most in a week against the dollar and yen on concern Greece?s political leaders will fail to reach an agreement allowing the nation to receive a second bailout from international creditors.

The 17-nation currency slid against 13 of its 16 major peers as Fitch Ratings said a Greek disorderly default ?cannot be wholly discounted.? The Dollar Index jumped before St. Louis Federal Reserve President James Bullard speaks amid speculation the US central bank will avoid easing monetary policy further. Australia?s currency retreated for the first time in five days after the nation?s retail sales declined.

?The talks are influencing risk sentiment and the euro?s dynamics,? Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London, said about the Greek bailout negotiations. ?Markets are still a little nervous. A Greek default is not off the table.?

The euro fell as much as 1 percent to $1.3030, the steepest intraday decline since Jan. 30, and traded 0.8 percent weaker at $1.3057 at 7:11 a.m. New York time. It dropped 0.7 percent to 100.04 yen. The dollar was little changed at 76.60 yen.

Greece?s interim Prime Minister Lucas Papademos and the three party leaders backing his government will meet around midday in Athens to discuss a detailed agreement for meeting conditions of an international rescue, a spokeswoman from the premier?s office said Monday.

Papademos struck a tentative deal with political parties to extend spending cuts after euro-area finance chiefs told them an increase in the 130 billion-euro aid package wasn?t forthcoming. Greece?s next tranche of payouts in maturing debt is due next month.

The euro dropped 0.5 percent against the dollar last week as an unresolved Greek debt-swap agreement with private bondholders added to concern the region?s fiscal crisis is far from over.

?Fitch expects Greece to undertake an orderly debt restructuring, which would ensure that a payment system is in place,? the ratings company said in a statement Monday. ?However, a disorderly default, which may include an exit from the eurozone, cannot be wholly discounted.?

The euro has fallen 4.8 percent over the past three months, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen has advanced 3.6 percent and the dollar has gained 1.2 percent.

Futures traders reduced their bets that the euro will decline against the dollar, figures from the Washington-based Commodity Futures Trading Commission showed. The difference in the number of wagers by hedge funds and other large speculators on a drop in the euro compared with those on a gain was 157,546 on Jan. 31, down from a record 171,347 a week earlier.

The yen rose against most of its major peers even after Bank of Japan Governor Masaaki Shirakawa said the nation?s economic condition is ?severe? because of deflation and the strong currency. The central bank is implementing monetary easing measures and will take appropriate steps as needed, he said in parliament in Tokyo Monday.

The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six US trading partners, climbed 0.6 percent to 79.392.

US government data showed on Feb. 3 that nonfarm payrolls rose by 243,000 in January, surpassing the 140,000 increase estimated by economists. The benchmark yield on 10-year Treasuries jumped 10 basis points to 1.92 percent that day, the biggest gain since Dec. 20.

?I need to see significant deterioration in the economy and some threat of deflation or inflation moving significantly below our inflation target before? backing more bond buying by the Fed, Bullard said on Feb. 3 in an interview. He is due to speak about inflation targeting Monday in Chicago.

The dollar weakened 0.5 percent against the euro on Jan. 25 after the Fed pledged to keep the benchmark interest rate near zero until late 2014. The central bank purchased $2.3 trillion of Treasury and mortgage-related bonds in two rounds of so- called quantitative easing, or QE, that ended in June.

?The Fed is also taking into consideration the development of the labor market when making rate decisions,? said You-Na Park, a foreign-exchange strategist at Commerzbank AG in Frankfurt. ?There might be some speculation that the Fed might not need to ease further.?

The Swedish krona fell against all but one of its major peers as the implied volatility of three-month options on Group of Seven currencies rose for the first time in four days.

The measure of volatility was 10.52 percent from 10.15 percent at the end of last week according to the JPMorgan G7 Volatility Index. An increase makes investments in currencies with higher benchmark lending rates less attractive as the risk in such trades is that market moves will erase profits.

The krona fell 1 percent to 6.7437 per dollar and deprecated 0.2 percent to 8.8069 per euro.

The British pound fell as the spending cuts that helped the U.K. preserve its AAA credit rating last year weigh on the currency as investors lose confidence that Prime Minister David Cameron will revive economic growth.

Sterling had its worst January since 2008, falling 0.6 percent, after a 3.1 percent advance in the second half of 2011, according to data compiled by Bloomberg.

The pound was 0.4 percent weaker against the US and Japanese currencies, trading at $1.5752 and 120.7 yen. It strengthened 0.3 percent to 82.94 pence per euro.

The Australian Bureau of Statistics said the country?s retail sales fell 0.1 percent in December from a month earlier. Economists had estimated a 0.2 percent gain.

The Reserve Bank of Australia will lower the benchmark interest rate to 4 percent from 4.25 percent in a meeting Tuesday, another survey of economists shows.

The so-called Aussie lost 0.7 percent to $1.0694 and weakened 0.7 percent to 81.95 yen. [Bloomberg]