Euro Falls From 2-Month High as Greek Aid Withheld; Aussie Dollar Weakens
Friday, 10 February 2012 | 12:53
The euro fell from a two-month high against the dollar as European finance ministers withheld an aid package for Greece, damping demand for the region’s assets.
The greenback strengthened against all but one of its 16 major peers as stocks fell, boosting demand for the world’s reserve currency. Australia’s dollar dropped for a third day after the nation’s central bank lowered its forecasts for growth. Asian currencies had this year’s first weekly loss.
“The Greek deal wasn’t finalized overnight so that is a negative,” said Geoffrey Kendrick, head of European currency strategy at Nomura International in London. “We’re seeing the euro paring its gains for the week and I would expect it to come off a bit further today, maybe to sub $1.32.”
The euro was 0.2 percent weaker at $1.3259 at 10:58 a.m. London time, paring its weekly advance to 0.8 percent. It reached $1.3322 yesterday, the strongest level since Dec. 12. Europe’s shared currency slipped 0.1 percent to 103.05 yen. The dollar was little changed at 77.72 yen. It earlier advanced to 77.75 yen, the strongest level since Jan. 26.
Europe’s 17-nation currency has lost 3.1 percent in the past six months as the region’s debt crisis deepened, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar has appreciated 4 percent in the same period.
The euro snapped a three-day advance against the yen after Greek Finance Minister Evangelos Venizelos said his euro-area counterparts refused to approve a 130 billion-euro aid package because the government fell short of austerity demands.
Greece is missing its debt-cutting targets and may fall short of its intended debt-to-gross-domestic product ratio, German Finance Minister Wolfgang Schaeuble told lawmakers in Berlin today, according to two people who took part in the meeting. Germany’s lower house of parliament, the Bundestag, will vote on a second Greek aid package on Feb. 27.
Greek lawmakers will vote on measures to cut spending this weekend in a ballot that Venizelos said amounts to a decision on membership of the currency union. Another extraordinary assembly of the euro-area ministers was set for Feb. 15.
The MSCI Asia Pacific Index (MXAP) fell 1.4 percent, paring its eighth weekly advance. The Stoxx Europe 600 Index dipped 0.4 percent.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, was 0.1 percent higher at 78.718.
Australia’s currency slid versus all but one of its major peers after the Reserve Bank said it sees the economy expanding 3.5 percent this year, down from its Nov. 4 estimate of 4 percent. Consumer prices will rise 3 percent in the year through to the fourth quarter, less than a previous prediction of 3.25 percent, the RBA said in its quarterly monetary policy statement released today.
The so-called Aussie dollar weakened 0.9 percent to $1.0691 and fell 0.8 percent to 83.092 yen.
The implied volatility of three-month options for Group of Seven currencies fell as low as 9.79 percent, the least since August 2008, according to the JPMorgan G7 Volatility Index. It was as high as 10.13 percent yesterday. A decrease makes investments in currencies with higher benchmark lending rates more attractive as the risk in such trades is that market moves will erase profits.
Declining volatility in currency markets “tells you that you should be getting into the higher-yielding currencies but then the question, of course, is how long will this last for?” said Adrian Foster, head of financial-markets research for Asia at Rabobank Groep NV in Hong Kong. “Once people start observing it, more speculative money starts to pile in on the carry trade and sows the seed of its own destruction.”
The Bloomberg-JPMorgan Asia Dollar Index (ADXY) fell 0.5 percent this week, led by the Indian rupee’s biggest drop since November, as data showed Chinese and Philippine exports shrank. The rupee fell 2.1 percent this week to 49.701 per dollar, according to data compiled by Bloomberg.