Euro Near Two-Week Low Against Swiss Franc on Risks to Recovery

July 7 -- The euro traded near a two-week low against the Swiss franc on speculation European finance ministers will today reiterate the global economic recession is far from over and risks to the region’s recovery remain.

The euro dropped to the lowest in two weeks versus the yen yesterday as Luxembourg Finance Minister Jean-Claude Juncker said at a meeting of euro-area counterparts in Brussels that “we are still in the middle of the crisis.” The dollar pared gains versus the pound today on speculation Group of Eight leaders will call into question the greenback’s status as the international reserve currency when they meet tomorrow.

“It’s natural that European policy makers aren’t confident in their economic recovery as the region is nowhere near that stage yet,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “The trend to avoid risk is likely to persist. It’s a positive for the yen and a negative for the euro.”

The euro traded at 1.5168 francs as of 6:01 a.m. in London from 1.5165 yesterday in New York, when it fell to 1.5152 francs, the weakest level since June 24. Europe’s currency was little changed at 133.29 yen from 133.34, and traded at $1.3981 from $1.3984. The dollar bought 95.33 yen from 95.35, and was at $1.6281 per pound from $1.6286.

The yen may advance to 132.50 per euro and 94.60 versus the dollar today, Ishikawa said.

Forecast Cut

Juncker’s comments in Brussels yesterday came after the Organization for Economic Cooperation and Development said last month signs of a recovery in the 16-nation euro area were not clear. The OECD cut its 2009 forecast for the region’s economy to a contraction of 4.8 percent, from a decline of 4.1 percent projected in March, and said the ECB should lower its benchmark interest rate from 1 percent.

European Union finance ministers meet again today in Brussels. The Eonia overnight index average, the market rate that European banks charge each other, fell to 0.332 percent yesterday from 0.381 a week ago, below the ECB’s benchmark.

“It’s not only lingering worries about the prospect of the eurozone economy that are hurting sentiment toward the euro, the narrowing yield advantage, as evident by declines in Eonia are also weakening demand for the single currency,” said Akira Takei, a fund manager in Tokyo at Mizuho Asset Management Co., a unit of Japan’s second-largest bank.

‘Remain Weak’

Euro-area economic activity this year “is likely to remain weak, but should decline less strongly than was the case in the first quarter,” European Central Bank President Jean-Claude Trichet said July 2, when policy makers left the benchmark rate at a record low.

Demand for the dollar was tempered on speculation its role as the world’s reserve currency may be questioned at the G-8 meeting starting in L’Aquila, Italy, tomorrow.

“We need to be alert to the possibility of the G-8 actually making this issue an official agenda item,” said Daisuke Uno, chief strategist in Tokyo at Sumitomo Mitsui Banking Corp., a unit of Japan’s third-largest banking group. “This will keep a cap on the dollar.”

Russia said the world economy is overly reliant on the dollar and called for changes in how $6.5 trillion in currency reserves are managed. “The dollar system or the system based on the dollar and euro have shown that they are flawed,” Russian President Dmitry Medvedev said in an interview with the Italian newspaper Corriere della Sera, repeating his proposal for a new international reserve currency.

Reserve Currency

Emerging-markets policy makers aren’t a near consensus on a plausible alternative to the dollar as the world’s reserve currency. Chinese Deputy Foreign Minister He Yafei said on July 2 that the dollar will reign supreme for “many years to come.”

Australia’s dollar was little changed against the yen and the dollar after the Reserve Bank of Australia left interest rates unchanged today for a third month.

Central bank Governor Glenn Stevens was forecast to hold the benchmark rate at 3 percent by all 20 analysts surveyed by Bloomberg News.

The Australian dollar traded at 76.11 yen from 76.06 yen yesterday, and was at 79.81 U.S. cents from 79.77 cents.