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Euro Advances to 3-Month High Versus Yen on Greek Bailout; Aussie Declines

Tuesday, 21 February 2012 | 12:30
The euro climbed to a three-month high against the yen after euro-area finance ministers agreed to award Greece a second bailout package to stave off a default next month.
The 17-nation currency was little changed against the dollar as Luxembourg Prime Minister Jean-Claude Juncker said the deal includes a 53.5 percent writedown for investors in Greek bonds, greater than a previous arrangement. The Australian dollar weakened after the Reserve Bank said in minutes of its Feb. 7 meeting that there is scope to ease monetary policy.
“The deal is helping to support the euro in the near term as the outright default appears to have been avoided and short- term uncertainty is removed,” said Chris Walker, a currency strategist at UBS AG in London. “But we remain cautious because several outstanding issues remain unresolved.”
The euro rose 0.2 percent to 105.64 yen at 10:42 a.m. London time, after touching 106.01 yen, the most since Nov. 14. Europe’s common currency traded at $1.3238 after reaching $1.3293 earlier, the strongest level since Feb. 9. The dollar gained 0.2 percent to 79.81 yen.
Euro-area finance ministers awarded 130 billion euros in aid to Greece, and reached an accord for greater debt relief from investor representatives in an exchange offer meant to tide the nation past a bond redemption next month.
‘Very Good Agreement’
European Central Bank President Mario Draghi called the deal “a very good agreement” and Italian Prime Minister Mario Monti said the private bondholders agreed to take a bigger write-off on their Greek debt after “intense” negotiations.
The euro gained 0.5 percent in the past week as optimism built that Greece would win more international support, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The dollar fell 0.4 percent over that period and the yen is down 2.3 percent.
Further euro gains may be limited as Greece still faces “steep” challenges, said Paul Robson, a senior foreign- exchange strategist at Royal Bank of Scotland Group Plc. An analysis by the International Monetary Fund and European officials suggested Greece’s debt may still balloon to 160 percent of gross domestic product in a worst-case scenario.
“I don’t think the market can suddenly become optimistic that this is the end of it,” London-based Robson said. “With each passing bailout and each negotiation over the tranche payments, the stance of the creditors becomes hardened, and the more we go down this road, it’s only going to continue.”
RBA Minutes
The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain increased to 148,641 on Feb. 14 from 140,593 a week earlier, the Commodity Futures Trading Commission said on Feb. 17.
Australia’s dollar dropped against all of its 16 major peers after the Reserve Bank released minutes of this month’s meeting when it kept interest rates unchanged at 4.25 percent.
The RBA board “judged that if demand conditions were to weaken materially, the inflation outlook would provide scope for a further easing in monetary policy,” it said.
Australia’s currency fell 0.8 percent to $1.0673. It dropped 0.5 percent to 85.19 yen.
The U.S. dollar was 0.1 percent from its strongest level in more than six months against the yen before a report forecast to show existing home sales rose to the highest since May 2010. The data may ease speculation the Federal Reserve will expand stimulus measures.
Home Purchases
Purchases of existing homes rose 0.9 percent to a 4.65 million annual rate, the National Association of Realtors will say tomorrow, according to the median economist estimate in Bloomberg News survey.
“The dollar is entering a rising trend,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp., a currency margin company. “The U.S. economic recovery is picking up.”
The dollar has climbed 4.6 percent against the yen this month and touched 79.89 yen yesterday, the most since Aug. 4.
Sweden and Norway are losing their appeal as havens from Europe’s debt crisis at a time when the krona and krone are more overvalued than at almost any point in the past 40 years.
Sweden’s central bank cut interest rates for a second- straight meeting on Feb. 16 after exports, accounting for about half of the nation’s output, fell 6 percent in December. Norway’s foreign trade slid 4.3 percent in the fourth quarter. The Swedish krona is about 25 percent too expensive, and the Norwegian krone more than 40 percent based on an Organization for Economic Cooperation and Development measure of the relative costs of goods and services.
The krona was little changed at 8.8084 per euro and 6.6544 against the dollar. The krone weakened 0.2 percent versus the euro to 7.5234, and slid 0.3 percent to 5.6838 per dollar.
Source: Bloomberg

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