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Euro slides to 5-week low as Ireland trumps G20 summit

NEW YORK - The euro slid to a five-week low against the dollar on Thursday as growing uncertainty about Ireland’s ability to repay its debts overshadowed attempts at a Group of 20 summit to ease global tensions over currency and trade policies.

Ireland’s issues have moved to the forefront of currency concerns recently after taking a backseat to US Federal Reserve policy for several weeks. Yields on 10-year Irish bonds rose well above 8 percent to a record high over comparable German debt, the euro zone’s standard.

Investors are worried Ireland would not be able to cut spending as planned and may require a bailout, with bond holders forced to absorb losses.

“The market has gone back to focusing on Europe rather than the U.S., where rates are currently very low,” said Greg Anderson, G10 FX strategist at Citigroup in New York. “It has become a game of ‘Which currency do you dislike the most?’ and right now that currency is the euro.”

The Fed’s Treasury bond purchase program, announced last week, is widely viewed as detrimental to the value of the dollar and a boon for higher-yielding, riskier currencies. That trade, however, may have run its course and Europe’s debt issues have caused investors to shun higher-risk assets in favor of the greenback.

The euro fell as low as $1.3637 on trading platform EBS, a five-week trough, and was last down 0.9 percent at $1.3655. It also fell 0.6 percent against the yen and hit a seven-week low against sterling.

“While we think the euro looks vulnerable over the near-term, by the end of the year it will likely head higher,” Anderson said.

BNP Paribas said the decline of the euro versus the dollar may prove shallow, stalling near $1.3435-$1.3333 support during the next few weeks.

If pivotal $1.3333 pattern support holds, the euro’s underlying longer-term rally off its June low around $1.1875 will remain intact. As such, the euro would be capable of rallying again and setting a new cycle high above $1.4280 later this year or in early 2011, the bank said in commentary.

Increased dollar appeal

The spike in Irish yields and decline in German yields as investors seek shelter in bunds has come as US yields have turned higher, lifted partly by a string of strong U.S economic data, including October’s employment report.

The yields make holding the dollar more attractive and helped it rise above 82 yen this week for the first time since early October. It was last up 0.3 percent at 82.51 yen.

The Fed said it would buy $600 billion of Treasuries by mid-2011 to lower US interest rates and boost slow growth, though a US think tank report on Thursday said the central bank could buy fewer bonds if the economy improves.

Trading was lighter than usual, with some markets in the United States and Canada closed for holidays. The US bond market was closed in observance of the Veterans Day holiday.

G20 meets in South Korea

Europe’s woes diverted attention from a G20 summit in South Korea. Discussion was expected to include exchange rate policies and global economic imbalances, though few investors expect a sweeping agreement.

Much of the disagreement on currencies focuses on the United States and China, with the former eager to see the Chinese yuan appreciate at a faster pace.

Citigroup’s Anderson said the G20 is too big a group to reach any substantive agreement at the meeting in Seoul.

“There are just too many diverse interests in play, so we do not expect any major developments to come out of it,” he said.