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Euro Declines From Two-Week High as Greek Debt Discussions Crimp Demand

Saturday, 21 January 2012 | 00:43
The euro dropped from a two-week high against the dollar as European stocks fell and Greek officials held debt-swap talks for a third day, damping investor demand for the shared currency.
The dollar rallied versus most of its major counterparts as investors sought the relative safety of the U.S. currency. The 17-nation euro rose for the first week in seven after Spain and France sold bonds at lower yields yesterday. The Canadian dollar dropped versus the greenback after the nation’s inflation rate fell more than economists anticipated, weakening the argument for higher interest rates.
“There’s been a few reversals of some of the trades that were put on yesterday,” said Alan Ruskin, global head of Group- of-10 foreign-exchange strategy at Deutsche Bank AG in New York. “People are trimming just a bit of long-euro exposure into the weekend, given the Greek private sector involvement.” A long position is a bet that an asset will increase in value.
Europe’s currency fell 0.3 percent to $1.2913 at 5 p.m. New York time after touching $1.2986, the highest level since Jan. 4. The euro trimmed its weekly gain to 2 percent, the first five-day advance since the period ended Dec. 2. The euro depreciated 0.4 percent to 99.62 yen. The dollar weakened 0.1 percent to 77.01 yen.
The benchmark Stoxx Europe 600 Index slipped 0.3 percent, and the Standard & Poor’s 500 Index rose 0.1 percent.
Biggest Gainers
Brazil’s real and Mexico’s peso are the best performing major currencies against the dollar this year. The real has appreciated 6.2 percent, its best start to the year since 2003, and the peso has gained 5.7 percent, its biggest gain in the first 20 days of the year since the government reset its nominal value in 1993.
Mexico’s central bank kept its benchmark lending rate unchanged for the 24th consecutive meeting today as slower economic growth failed to head off a pick-up in inflation.
The peso rose 0.3 percent to 13.1813 against the greenback. The real rose 0.6 percent to 1.7552 per dollar.
Sweden’s krona declined against all 16 of its major counterparts tracked by Bloomberg on speculation this week’s gains would be hard to sustain. The krona fell 0.2 percent to 8.7713 per euro after appreciating yesterday to 8.7429, the strongest level since March 3.
‘Risk Aversion’
“There seems to be a bit of risk aversion, which is the reason why the krona is softer,” said Niels Christensen, chief currency strategist at Nordea Bank AB in Copenhagen. “The krona has done quite well against the euro and dollar this week, and so it is making a little bit of a correction to the downside.”
The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, advanced 0.1 percent to 80.158, rising from the lowest level since Jan. 4. The gauge was still headed for a 1.6 percent weekly drop on reduced demand for a refuge.
Purchases of existing U.S. homes climbed 5 percent to a 4.61 million annual pace last month, the most since January 2011, the National Association of Realtors said today. The pace was less than the 4.65 million median forecast of economists surveyed by Bloomberg News. U.S. initial jobless claims slid to the lowest level since April 2008, a Labor Department report showed yesterday.
Debt Crisis
The euro has tumbled during the past three months on signs the region’s sovereign-debt crisis was spreading to Italy and Spain. It dropped 4.2 percent, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar gained 2.4 percent, and the yen strengthened 0.4 percent.
European officials and Greece’s private bondholders agreed in October to carry out a 50 percent cut in the face value of the nation’s debt by voluntarily exchanging outstanding bonds for new securities, with a goal of reducing the country’s borrowings to 120 percent of gross domestic product by 2020. An accord with bondholders is essential to a second financing package for Greece, which faces a 14.5 billion-euro ($18.7 billion) bond payment on March 20.
Greece and its private creditors are close to a final agreement on the framework of a debt swap plan, with the European Union approving the terms so far agreed, newspaper To Vima reported on its website, without citing anyone.
There are still legal, technical and other details that need to be specified and while progress is being made in meetings in Athens, the negotiations are expected to continue beyond today, the Athens-based newspaper reported on its website.
More Talks
Officials were set to resume talks with the Institute of International Finance, a Washington-based industry group representing more than 450 financial firms, today after a teleconference with officials from the European Union, Greek Finance Minister Evangelos Venizelos told reporters. He met with creditor representatives and Prime Minister Lucas Papademos today.
“The euro had a very, very strong rally over the last three days on the assumption that the Greek deal is going to be done,” said Boris Schlossberg, director of research at online currency trader GFT Forex in New York. “The fact that it’s going into the third day created a little bit of concern and people took profit ahead of the $1.30 level.”
Europe’s Economy
The euro region’s economy may drop 0.2 percent this year, while the U.S. economy will probably expand 2.3 percent, according to the median forecast of economists.
The loonie, as Canada’s currency is nicknamed, dropped 0.2 percent to C$1.0132 per U.S. dollar.
Consumer prices fell 0.6 percent in December, compared with an advance of 0.1 percent the previous month, Statistics Canada said today in Ottawa. The rate climbed 2.3 percent from a year earlier. The median forecast of 23 economists in a Bloomberg News survey was for a 0.2 percent monthly drop and a 2.7 percent annualized increase.
The Bank of Canada has held its benchmark interest rate at 1 percent since September 2010. The central bank raised its inflation forecast for this year in a monetary report this week. Inflation will average 2.2 percent this quarter and 1.5 percent from April to June, faster than October forecasts of 1.9 percent and 1 percent, the Jan. 18 report said.

Source: Bloomberg
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