The euro fell against the dollar, ending a three-day gain, on concern Greece’s f

iscal crisis will spread to other nations and hamper the region’s economic growt
h.
The Dollar Index rose for the first time in four days before U.S. reports that e
conomists said will show the housing market is improving and consumers turned th
e most optimistic in 20 months. The single currency weakened versus 12 of its 16
major counterparts after the Bank of Spain said on May 22 it appointed a provis
ional administrator to run CajaSur, a savings bank crippled by property loan def
aults.
“Weekend revelations that the Bank of Spain has acted to support a regional lend
er is likely to weigh on the euro,” Gareth Berry, a currency strategist at UBS A
G in Singapore, wrote in a note to clients. “This will probably revive concerns
about the broader stability of the euro-zone banking system.”
The euro fell to $1.2518 as of 9:30 a.m. in Tokyo from $1.2570 in New York last
week. The currency dropped to 112.65 yen from 113.13 yen. The dollar was at 89.9
3 yen from 90 yen.
The Dollar Index, which tracks the greenback against the currencies of six major
U.S. trading partners including the euro, yen and pound, gained 0.3 percent to
85.64.
The euro has lost 5.9 percent this year, based on Bloomberg Correlation-Weighted
Indexes. The dollar has risen 9.3 percent, and the yen has advanced 13 percent.
High-Deficit Nations
European Union finance ministers last week pledged to stiffen sanctions imposed
on high-deficit countries and ruled out setting up a mechanism to manage state d
efaults.
“The markets’ focus is still on structural issues in the euro zone,” said Manabu
Tamaru, a senior investment manager at Baring Asset Management in Tokyo. “An ul
timate solution to this crisis won’t happen until policy makers reach political
unity. The euro will be in a downtrend.”
Under the German-inspired Stability and Growth Pact, nations with deficits above
3 percent of gross domestic product face fines unless they get the budget back
into compliance. No country has been fined during the euro’s 11-year lifespan.
Futures traders pared bets against the euro versus the dollar from a record as w
idening price swings prompted a reduction of euro-funded investments in higher-y
ielding countries.
The number of wagers by hedge funds and other large speculators for a decline in
the 16-nation currency on May 18 was 107,143 contracts more than those for a ga
in, down from a record 113,890 a week earlier, Commodity Futures Trading Commiss
ion data show.
Geithner’s Visit
U.S. Treasury Secretary Timothy F. Geithner will tell his Chinese counterparts t
hat Europe’s crisis should have only a small effect on the broader global recove
ry, a U.S. official told reporters in Beijing yesterday.
Geithner and Secretary of State Hillary Clinton are in China for the two-day Str
ategic and Economic Dialogue, a set of annual high-level talks. Geithner will th
en depart for London, Berlin and Frankfurt to meet with European officials and r
einforce his call for coordinated efforts to fight off the crisis and rein in go
vernment spending.
U.S. existing home sales rose to an annual rate of 5.65 million in April, from 5
.35 million the previous month, according to a Bloomberg survey before the Natio
nal Association of Realtors report today. The Conference Board’s confidence inde
x rose to 59 this month from 57.9 in April, according to another survey before t
omorrow’s data. That would be the highest since September 2008.
‘V-shaped Recovery’
“The U.S. is experiencing a V-shaped recovery,” said Adam Carr, a senior economi
st at ICAP Australia Ltd. in Sydney. “Against this backdrop, the greenback is li
kely to be supported.”
The dollar will probably become a “growth currency” during the next decade, shed
ding its haven status of the past decade, as the U.S. economy outperforms Europe
and Japan, according to UBS, the world’s second-largest foreign-exchange trader
.
The dollar will return to a pattern seen in the early 1980s and late 1990s, when
it appreciated as stocks rose, Mansoor Mohi-uddin, global head of foreign-excha
nge strategy at UBS in Singapore, wrote today in a research report titled “FX Me
ga- Trends 2010-2020: Dollar Regime Change.”
“Over the next 10 years it seems likely that the dollar will shift to having a p
ositive relationship with investor sentiment as America’s fundamentals appear mo
re attractive than those of the euro zone, U.K. and Japan,” Mohi-uddin wrote. “T
he likelihood that the dollar performs strongly rather than weakly when investor
s are risk-seeking will signify a major change in the currency markets.”