The euro fell to its lowest level since the collapse of Lehman Brothers Holdings Inc. on concern that the 16-nation currency may be headed for disintegration.

The shared currency fell for a fourth week versus the dollar and a third week versus the yen, the longest losing streaks since February, as German Chancellor Angela Merkel said that Europe is in a “very, very serious situation” despite a rescue package for the region’s most indebted nations. European Central Bank Governing Council member Axel Weber speaks on financial-market regulation next week in Berlin.

“We went through a massive liquidation trade in Europe and risk-taking positions were wiped out across the board,” said Sebastien Galy, a currency strategist at BN Paribas SA in New York. “The markets are trying to figure out what the consequences are for growth. There are massive uncertainties and that will keep the downward pressure on the euro.”

The euro fell 3.1 percent to $1.2358 this week, from $1.2755 on May 7. It traded as low as $1.2354 yesterday, the weakest since October 2008. The common currency dropped 2.1 percent to 114.38 yen, from 116.81 last week. The dollar traded at 92.47 yen after gaining 1 percent last week, the first weekly gain since the five days ended April 23.
 
‘A Sham, A Chimera’

European policy makers last week unveiled a loan package worth almost $1 trillion and a program of bond purchases in an effort to contain a sovereign-debt crisis that has threatened to shatter confidence in the euro. ECB President Jean-Claude Trichet said the move wasn’t supported by all 22 of the bank’s Governing Council members.
The ECB said it will intervene in government and private bond markets “to ensure depth and liquidity in those market segments which are dysfunctional,” and central banks in Germany, Italy and France began buying government bonds yesterday. The ECB restarted a dollar-swap line with the Federal Reserve.

By resorting to what some economists have called the “nuclear option,” the ECB may open itself to the charge it’s undermining its independence by helping governments plug budget holes.

“The ECB’s supposed ‘independence’ has now been shown to be nothing more than a sham, a chimera, a will-o’-the-wisp,” Dennis Gartman, a Suffolk, Virginia-based economist and hedge- fund manager, said in his daily Gartman Letter on May 10. “In the end the ECB and the euro will be punished for this decision to stand down from what had previously been considered sacred.”

Success Not Guaranteed

The greenback rose against Australia’s dollar and Norway’s krone, as oil and commodities retreated, damping demand for currencies linked to growth.

The Aussie fell 0.2 percent to 88.64 U.S. cents and the krone declined 0.4 percent to 6.2465 per dollar on speculation investors reversed carry trades that had profited from Australia’s 4.5 percent central bank rate and Norway’s 2.115 one-month deposit rate.

The benchmark rate of zero to 0.25 percent in the U.S. makes the dollar a popular funding currency for such trades. Such strategies lose money as the funding currency gains because it costs more to repay the loan.

Crude oil for June delivery fell 4.1 percent last week and the Reuters/Jeffries CRB Index of 19 commodities fell 2.8 percent yesterday. Norway is the world’s sixth largest oil exporter. Australia is the world’s biggest iron ore exporter.

Gold for immediate delivery yesterday reached an all-time high of $1,249.40 an ounce in New York as investors sought to hedge against Europe’s debt crisis.

Merkel, speaking yesterday at a panel discussion by Phoenix television, said that success is not yet guaranteed. Asked about disagreements with European Union partners, she said that “some arguments are worth it,” without elaborating.

‘The Euro Is Doomed’

The German chancellor’s comments followed a report from El Pais that French President Nicolas Sarkozy threatened to pull out of the euro unless Merkel agreed to back the European Union’s bailout plan at a meeting last weekend in Brussels, citing comments Spain’s Prime Minister Jose Luis Rodriguez Zapatero made at a meeting of socialist politicians. The Madrid- based newspaper didn’t say how it obtained the information. Aides to Sarkozy, Merkel and Zapatero all denied the report.

“The euro is doomed,” said Andrew Wilkinson, senior market analyst at Interactive Brokers Group LLC in Greenwich, Connecticut. “It’s like a clown without its makeup. The strains among the partners are becoming clear and it’s becoming harder to see global growth not being threatened by this.”
 
‘Head Through Parity’

The euro has lost 9 percent this year, according to Bloomberg Correlation-Weighted Indices. The dollar has gained 7.2 percent and the yen has advanced 7.9 percent.

The euro “can easily head through parity” with the U.S. dollar under a “hard landing” recovery scenario from the European deficit crisis, according to Royal Bank of Scotland Group Plc.

The forecast for the shared currency was reduced to $1.14 for the middle of next year, Alan Ruskin, head of foreign- exchange strategy at RBS Securities in Stamford, Connecticut, wrote in a note on May 13. The euro could test the key level of $1.1650 by year-end, he said.

The pound slid 1.8 percent to $1.4536, its third weekly decline versus the dollar, amid speculation that the U.K.’s governing coalition may collapse by year-end.

The U.K.’s Prime Minister David Cameron and his coalition partner, Nick Clegg, will “have a major problem keeping the left wing of the Liberal Democrats and the right wing” of the Conservatives in line, and a new election may be called before year-end, former Bank of England member David Blanchflower wrote in a Bloomberg News column on May 13.
The pound has dropped 2.8 percent against the dollar since May 11, when the Conservatives and Liberal Democrats formed a coalition government five days after elections failed to provide a clear winner.