Yen Falls in Longest Streak in Two Months; Euro Gains on Greece Bailout
Wednesday, 22 February 2012 | 01:35
The yen fell for a fourth day versus the dollar, the longest losing streak in more than two months, as investors sold the Japanese currency to buy higher-yielding assets.
The euro rose against the majority of its most-traded counterparts as Greece won a second international bailout and its government submitted debt-swap and austerity measures to the country’s parliament for approval. Gains in the dollar were limited as U.S. stocks rallied to the highest levels since 2008 before retreating. The yen has declined against all its major peers since Japan’s central bank increased its asset-purchase fund to 30 trillion yen last week.
“As the market conditions calm down a little and we have less volatility, there is more interest in selling the yen against non-major currencies,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York. “What we’ve seen with dollar-yen has a lot to do with Bank of Japan easing.”
The yen fell 0.1 percent to 79.74 at 5 p.m. in New York, after touching 79.89 yesterday, the weakest since Aug. 4. The euro declined less than 0.1 percent to $1.3234 after reaching $1.3293, the highest level since Feb. 9. Europe’s currency rose 0.1 percent 105.54 yen after earlier rising to 106.01 yen, the most since Nov. 14.
The implied volatility of three-month options for Group of Seven currencies fell as low as 9.97 percent, the least since Feb. 13, 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.
‘Risk Being Taken’
The S&P 500 rose less than 0.1 percent after climbing as much as 0.5 percent to 1,367.76, the strongest since June 2008. The Dow Jones Industrial Average rose above 13,000 for the first time since May 2008.
Benchmark interest rates are 10.5 percent in Brazil and 1.75 percent in Sweden and Norway compared to near zero percent in Japan.
“You’re seeing risk being taken in the equity markets and some of the money that was parked in yen moving out and removing support for the local currency,” said Samarjit Shankar, a managing director for the foreign-exchange group in Boston at Bank of New York Mellon. “There is an isolation of euro- denominated risk in global portfolios, especially on the bond and currency side, but that has not deterred investors from making tactical plays elsewhere.”
Sweden’s krona rose against most of its major counterparts as the central bank borrowed 10 billion kronor to restore reserves. The krona fell 0.1 percent to 6.6570 per dollar and was little changed versus the euro at 8.8099.
The Australian dollar weakened as policy makers “judged that if demand conditions were to weaken materially, the inflation outlook would provide scope for a further easing in monetary policy.” The central bank unexpectedly held rates at 4.25 percent this month after two quarter-percentage-point reductions late last year
Australia’s currency fell 0.9 percent to $1.0663. The Aussie dropped 0.8 percent to A$1.2411 per euro and declined 0.7 percent to 85.02 yen.
Euro-area finance ministers awarded 130 billion euros ($173 billion) in aid to Greece and reached an accord for greater debt relief from investor representatives in an exchange offer to tide the nation past a bond redemption next month.
Greek Debt Swap
Greece’s government submitted two separate laws on a voluntary debt swap known as private-sector involvement, or PSI, and collective action clauses and on fiscal measures in return for international financing to the country’s parliament for approval. The laws were posted on the Hellenic Parliament’s website.
Greek Prime Minister Lucas Papademos said the debt-swap process should be complete by March 10. The goal is for the nation to escape the full 14.5 billion-euro cost of a March 20 bond redemption.
“The euro reaction, we have seen for the most part, is extremely lackluster,” said Kathy Lien, director of currency research at online currency trader GFT Forex in New York. “Investors want to get the all-clear from the PSI and they want to see how many private bondholders actually participate in the deal. If we have less participation and the ratings agencies deem it a credit event, we’re back on the slippery slope.”
The so-called three-month 25-delta risk reversal rate was at minus 2.6275 percent today, rising from minus 2.98 percent on Feb. 16. A negative rate signals greater demand for euro puts relative to calls. Calls grant the right to purchase a currency, while puts allow for sales.
The euro depreciated 4.5 percent in the past three months, the most after the yen’s 6 percent decline, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The dollar slipped 2.3 percent.