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Euro Weakens as Greek Bond Stalemate Deepens European Debt Crisis Anxiety

Monday, 06 February 2012 | 00:00
The euro fell against the yen, dropping from a one-month high, as an unresolved Greek debt-swap agreement with private bondholders added to concern the region’s fiscal crisis is far from over.
The 17-nation currency dropped against all of its most- traded counterparts except for the Swiss franc, which declined after touching the highest level since the central bank acted in September to stem gains. The yen rose to almost a record against the U.S. dollar, leading to speculation Japan may intervene. South Africa’s rand and Mexico’s peso led gains after the U.S. jobless rate dropped. The European Central Bank is forecast to keep rates unchanged when it meets next week.
“The market is short euros and is likely to become increasingly short euros as the final decision about Greece is contemplated,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp., the world’s largest custodial bank. “This employment report has garnered a lot of attention on behalf of international investors, and it’ll be interesting to see if we see a carry- through rally next week.” A short position is a bet a currency will depreciate.
The euro dropped 0.6 percent to 100.79 yen after touching 102.21 on Jan. 26, the highest level since Dec. 23. The shared currency fell 0.5 percent to $1.3158. The yen appreciated 0.1 percent to 76.60 per dollar and reached 76.03 Feb. 1, the strongest level since reaching a post-World War II high of 75.35 Oct. 31.
The rand added 3.1 percent to 7.5218 per dollar in the biggest weekly gain against the greenback among the 16 major currencies tracked by Bloomberg. The peso rallied 2 percent to 12.6596, extending its gain against the dollar this year to 10.1 percent.
‘Uncertainty in Greece’
The euro dropped as leaders failed to reach an agreement with Greek bondholders on a restructuring of the nation’s debt. The deal is part of a second bailout that Greece and European officials have been attempting to finalize since July.
“The continuing uncertainty in Greece has contributed to a slightly weaker euro this week,” said Michael Derks, chief strategist at broker FXPro Financial Services Ltd. in London.
The ECB was considering using its bond holdings to bolster Greece’s next rescue program and support efforts to contain the sovereign-debt crisis, according to three euro-region officials.
The central bank meets Feb. 9 and will keep rates at 1 percent, according to the median estimate of 57 economists in a Bloomberg survey. The ECB cut rates twice, in November and December, and will auction unlimited three-year loans Feb. 29, after lending banks 489 billion euros ($642 billion) of them Dec. 21.
Net Shorts
Futures traders decreased bets the euro will fall versus the dollar, so-called net shorts, after increasing them for five straight weeks to a record last week. The difference between wagers that the shared currency will weaken versus those that it will rise narrowed to 157,546 on Jan. 31, data from the Commodity Futures Trading Commission showed yesterday.
U.S. nonfarm payrolls rose by 243,000, after a revised 203,000 gain in December, the Labor Department reported yesterday in Washington. The unemployment rate fell to 8.3 percent.
Federal Reserve Chairman Ben S. Bernanke said Feb. 2, in testimony to the House Budget Committee in Washington, that the economy has shown “signs of improvement” while remaining vulnerable to shocks.
The dollar has gained 6.2 percent over the past six months, the best performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro dropped 3 percent and the yen strengthened 5.1 percent.
Swiss Franc
The Swiss franc reached 1.02319 against the euro Feb. 1, the strongest level since September, when the Swiss National Bank said it would cap the franc at 1.20 per euro after it touched a euro-era record 1.00749 in August.
The franc fell 0.1 percent to 1.20838 per euro.
The Canadian currency appreciated even after the nation’s unemployment rate increased. The loonie rose 0.8 percent to 99.34 Canadian cents per U.S. dollar after yesterday touching 99.28 cents, the strongest since Oct. 31.
The nation’s jobless rate rose to 7.6 percent from 7.5 percent as employment increased by 2,300 last month, Statistics Canada said yesterday. Economists surveyed by Bloomberg News had forecast unemployment to stay at 7.5 percent and 22,000 jobs to be added.
Japan’s Finance Minister Jun Azumi has said he will take decisive steps against one-sided moves in the yen if needed. The currency’s level doesn’t reflect economic fundamentals, and falling U.S. interest rates are increasing speculative yen buying, he told reporters in Tokyo. Japan sold yen on Oct. 31 on concern its advance to a record would hurt exporters.
The yen dropped yesterday after the U.S. unemployment data damped speculation the Fed will add another round of asset purchases to spur growth.
“The pressure to intervene in the yen is receding with each rally in dollar-yen,” said Kathy Lien, director of currency research at the online trading firm GFT Forex in New York.
Source: Bloomberg
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