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Euro Rises to Eight-Week High on Greek Debt Speculation; Aussie Rallies

Wednesday, 08 February 2012 | 01:33
The euro rose to the highest in eight weeks against the dollar as Greek officials and creditors worked on the final draft of an agreement on budget and structural measures needed to free up a second aid package.
The 17-nation currency strengthened as Prime Minister Lucas Papademos prepared to meet with the European Commission, the European Central Bank and the International Monetary Fund to put the final touches to the document. The Dollar Index fell to its lowest since December as stocks and commodities erased earlier losses. Australia’s dollar surged after the central bank unexpectedly kept interest rates unchanged.
“Euro-dollar has driven up through $1.32 and is taking other currencies with it because people feel this thing just may be resolved,” said Martin Briggs, senior risk consultant for AFEX Markets Plc in London. “In the end, the euro politicians will strong-arm the Greeks into the austerity measures.”
The euro rose 1 percent to $1.3261 at 5 p.m. New York time after touching $1.3270, the highest level since Dec. 12. The yen fell 0.3 percent to 76.77 per dollar after dropping to 76.97, the weakest since Jan. 25. The shared currency gained 1.3 percent to 101.78 yen.
The euro gained 0.2 percent to 1.20904 versus the Swiss franc. It rose to 1.21019, breaching the 1.21 mark for the first time since Jan. 25. Swiss central bank interim Chairman Thomas Jordan said the currency remains “very strong” and policy makers can’t allow it to appreciate further. The Swiss National Bank imposed a 1.20 cap on the currency on Sept. 19.
Greek Meetings
A government spokeswoman said a meeting between Papademos and the leaders of the three parties supporting his government was postponed to tomorrow morning. Papademos was meeting with Charles Dallara, managing director of the International Institute of Finance, and Deutsche Bank AG Chairman Joseph Ackermann on details of a debt writedown, said the spokeswoman.
The yen fell against all of its major counterparts as implied volatility of three-month options for Group of Seven currencies fell to almost a 10-month low, according to the JPMorgan G7 Volatility Index. 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.
The Dollar Index, which Intercontinental Exchange Inc. uses to track the currency against those of six major U.S. trading partners, sank as much as 0.8 percent to 78.49, the lowest since Dec. 9.
‘Austerity Measures’
The Standard & Poor’s 500 Index gained 0.2 percent, after falling as much as 0.6 percent. The S&P GSCI Index of 24 raw materials advanced 0.6 percent after earlier losing 0.5 percent.
“If we get the approval that the market is looking for from political parties, then that can translate into a more positive risk environment,” said Mary Nicola, a New York-based currency strategist at BNP Paribas SA. “The whole focus on austerity measures is that it’s the prerequisite for the second bailout package.”
The euro has fallen 4 percent over the past three months, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen has risen 2 percent, and the dollar has strengthened 0.6 percent.
The so-called 25-delta risk reversal rate for the euro versus the dollar was minus 2.28 percent today, from minus 1.5 percent on Jan. 19. A negative rate signals greater demand for euro puts, the right to sell, relative to calls, the right to buy the common currency.
‘Firmer Footing’
Australia’s dollar gained against the majority of its 16 major counterparts after the central bank maintained the benchmark interest rate at 4.25 percent. All but three of 27 economists surveyed by Bloomberg predicted a cut to 4 percent.
The central bank “is basically saying the world is on firmer footing than a couple months ago,” said Greg Anderson, a senior currency strategist at Citigroup Inc. in New York. “For domestic reasons, they should have never been cutting, but they allowed concern about the international outlook to enter into their equation last year.”
The Australian dollar advanced 0.8 percent to $1.0809 after rising to $1.0823, the strongest since Aug. 2.

Source: Bloomberg
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