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Euro Rises to Two-Month High Versus Yen as China Pledges Debt Crisis Help

Wednesday, 15 February 2012 | 12:53
The euro rose for the first time in four days against the dollar as the People’s Bank of China said it will help tackle Europe’s debt crisis, easing pressure on the currency as Greece seeks a second international bailout.
The 17-nation euro climbed to its highest level in two months against the yen after a report showed European gross domestic product fell less than analysts estimated in the fourth quarter. New Zealand’s dollar rose to a six-month high versus the yen after the nation’s fourth-quarter retail sales increased more than economists estimated and a stock rally boosted demand for assets linked to growth.
“The China headlines came as a welcome relief for the euro,” said Audrey Childe-Freeman, global head of currency strategy at JPMorgan Private Bank in London. “The Chinese news was reassuring, with the Greek situation becoming more worrying by the day.”
The euro rose 0.3 percent to 103.37 yen at 10:35 a.m. London time and earlier touched 103.49, the strongest since Dec. 12. The shared currency advanced 0.3 percent to $1.3168. The dollar was little changed at 78.50 yen, after reaching 78.66 yen, the most since Nov. 1.
The Stoxx Europe 600 Index of shares gained 0.7 percent and the MSCI Asia Pacific Index rose 1.9 percent.
Chinese Help
People’s Bank of China Governor Zhou Xiaochuan said in Beijing today that the nation would invest in Europe’s bailout funds and sustain its holdings of euro assets. With the world’s largest foreign-exchange reserves of $3.18 trillion, China has previously signaled it wants to diversify the holdings away from U.S. dollar-denominated assets.
Zhou’s comments are “what’s prompting this bid in risk assets,” said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong.
The euro held gains after the European Union’s statistics office said GDP in the 17-nation euro area fell 0.3 in the fourth quarter from the previous three months. Economists had predicted a 0.4 percent drop. The French economy, Europe’s second largest, unexpectedly grew 0.2 percent.
European finance ministers canceled a meeting to discuss Greece scheduled to take place in Brussels today and will hold a teleconference instead. Italian Prime Minister Mario Monti said on Sky Italy Television yesterday that the decision was taken because it wasn’t certain that the discussions would be “successful.”
Political Assurance
“I did not yet receive the required political assurances from the leaders of the Greek coalition parties on the implementation of the program,” Jean-Claude Juncker, who is chairman of the euro finance panel, said yesterday.
The euro has lost 4.8 percent in the past six months, the second-worst performance after the Swiss franc among the 10 developed-nation currencies tracked by Bloomberg Correlation- Weighted Indexes. The dollar gained 5 percent and the yen rose 0.9 percent over the same period.
The yen dropped versus all of its major peers after new easing steps by the Bank of Japan yesterday added to signs officials are acting to protect the domestic economy from currency strength.
The Bank of Japan unexpectedly increased an asset-purchase program by 10 trillion yen to 30 trillion yen and set a 1 percent goal for inflation to boost the economy. The central bank kept the overnight lending rate at between zero and 0.1 percent.
Kiwi Rises
New Zealand’s currency gained against all of its 16 major peers after the country’s retail sales increased.
Retail sales in New Zealand adjusted for inflation rose 2.2 percent in the three months through December from the previous quarter, when they gained a revised 2.4 percent, a report showed today. Sales were forecast to climb 1.2 percent, according to the median estimate in a Bloomberg News survey.
New Zealand’s dollar rose 0,7 percent to 65.88 yen after earlier touching 66.12, the most since Aug. 5. The kiwi advanced 0.7 percent to 83.95 U.S. cents.
Implied volatility of three-month options of Group of Seven currencies was at 10.07 percent from as high as 10.13 percent yesterday 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.
New Zealand’s benchmark rate is 2.5 percent, compared with as low as zero in the U.S. and Japan.
Source: Bloomberg
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