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Euro Drops Against Dollar, Yen on Concern Greek Bailout Agreement Elusive

Monday, 06 February 2012 | 12:35
The euro slid the most in a week against the dollar and yen on concern Greece’s political leaders will fail to reach an agreement allowing the nation to receive a second bailout from international creditors.
The 17-nation currency slid against 13 of its 16 major peers as Fitch Ratings said a Greek disorderly default “cannot be wholly discounted.” The Dollar Index jumped before St. Louis Federal Reserve President James Bullard speaks amid speculation the U.S. central bank will avoid easing monetary policy further. Australia’s currency retreated for the first time in five days after the nation’s retail sales declined.
“The talks are influencing risk sentiment and the euro’s dynamics,” Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London, said about the Greek bailout negotiations. “Markets are still a little nervous. A Greek default is not off the table.”
The euro fell as much as 1 percent to $1.3030, the most since Jan. 30, and traded at $1.3045 at 10:20 a.m. London time. It dropped 0.9 percent to 99.90 yen. The dollar was little changed at 76.60 yen.
Greece’s interim Prime Minister, Lucas Papademos, and the three party leaders backing his government will meet around midday in Athens to discuss a detailed agreement for meeting conditions of an international rescue, a spokeswoman from the premier’s office said today.
Greek Crisis
Papademos struck a tentative deal with political parties to extend spending cuts after euro-area finance chiefs told them an increase in the 130 billion-euro aid package wasn’t forthcoming. Greece’s next tranche of payouts in maturing debt is due next month.
The euro dropped 0.5 percent against the dollar last week as an unresolved Greek debt-swap agreement with private bondholders added to concern the region’s fiscal crisis is far from over.
“Fitch expects Greece to undertake an orderly debt restructuring, which would ensure that a payment system is in place,” the ratings company said in a statement today. “However, a disorderly default, which may include an exit from the euro zone, cannot be wholly discounted.”
The euro has fallen 4.8 percent over the past three months, the worst performance among the 10 developed-nation currencies tracked by the Bloomberg Correlation-Weighted Indexes. The yen has advanced 3.6 percent and the dollar has gained 1.3 percent.
Yen Strength
Futures traders reduced their bets that the euro will decline against the dollar, figures from the Washington-based Commodity Futures Trading Commission showed. The difference in the number of wagers by hedge funds and other large speculators on a drop in the euro compared with those on a gain was 157,546 on Jan. 31, down from a record 171,347 a week earlier.
The yen rose against all but two of its major peers even after Bank of Japan Governor Masaaki Shirakawa said the nation’s economic condition is “severe” because of deflation and the strong currency. The central bank is implementing monetary easing measures and will take appropriate steps as needed, he said in parliament in Tokyo today.
The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, climbed 0.6 percent to 79.451.
U.S. government data showed on Feb. 3 that nonfarm payrolls rose by 243,000 in January, surpassing the 140,000 increase estimated by economists. The benchmark yield on 10-year Treasuries jumped 10 basis points to 1.92 percent that day, the biggest gain since Dec. 20.
Inflation Target
“I need to see significant deterioration in the economy and some threat of deflation or inflation moving significantly below our inflation target before” backing more bond buying by the Fed, Bullard said on Feb. 3 in an interview. He is due to speak about inflation targeting today in Chicago.
The dollar weakened 0.5 percent against the euro on Jan. 25 after the Fed pledged to keep the benchmark interest rate near zero until late 2014. The central bank purchased $2.3 trillion of Treasury and mortgage-related bonds in two rounds of so- called quantitative easing, or QE, that ended in June.
“The Fed is also taking into consideration the development of the labor market when making rate decisions,” said You-Na Park, a foreign-exchange strategist at Commerzbank AG in Frankfurt. “There might be some speculation that the Fed might not need to ease further. Less easing should be positive for the U.S. Dollar since the Fed’s monetary policy over the last few quarters has been one reason for a weaker dollar.”
The Australian dollar, known as the Aussie, fell against most of its 16 major peers after the Bureau of Statistics said the country’s retail sales fell 0.1 percent in December from a month earlier. Economists had estimated a 0.2 percent gain.
The Reserve Bank of Australia will lower the benchmark interest rate to 4 percent from 4.25 percent in a meeting tomorrow, another survey of economists shows.
Australia’s dollar lost 0.7 percent to $1.0698 and weakened 0.7 percent to 81.92 yen.
Source: Bloomberg
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