Bloomberg News

Euro Gains to 4-Week High as Greece Gets Revised Aid Package

June 03, 2011

June 3 (Bloomberg) -- The euro rose to a four-week high against the dollar after Greece was approved for more assistance to address its debt crisis and a report showed U.S. employers in May added the fewest jobs in eight months.

Europe’s shared currency extended its gains after Luxembourg’s Jean-Claude Juncker, who leads the group of euro- area finance ministers, said they agreed to pay the next installment to Greece under last year’s 110 billion-euro ($161 billion) bailout. The U.S. currency dropped to a record low against the Swiss franc as investors sought haven assets after the jobless rate unexpectedly rose to 9.1 percent.

“With the strong growth in the European core, the interest-rate differential and the likelihood that you’re going to get another bailout for Greece, it’s a recipe for euro strength,” said Jessica Hoversen, a New York-based analyst at the futures broker MF Global Holdings Ltd.

The euro rose 1 percent to $1.4635 at 5 p.m. in New York and touched $1.4643, the most since May 5. The currency rose for a second day against the Japanese yen, trading at 117.48. The dollar fell 1.1 percent versus the franc to 83.35 centimes, touching 83.31, the lowest since at least 1971.

The dollar has dropped 6.5 percent this year against its nine developed-nation counterparts, the biggest decline in the group, according to Bloomberg Correlation-Weighted Currency Indexes. The euro has gained 3.2 percent this year and the yen has dropped 5.5 percent.

Futures Bets

Futures traders reversed their bets that the yen will gain against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on a gain -- so-called net shorts -- was 1,648 on May 31, compared with net longs of 8,006 a week earlier.

U.S. payrolls increased by a less-than-projected 54,000 last month, after a revised 232,000 gain in April that was smaller than initially reported, Labor Department figures showed today in Washington. The median forecast in a Bloomberg News survey called for payrolls to rise 165,000. The jobless rate climbed to the highest level this year from 9 percent a month earlier.

‘Ugly Number’

“It’s an ugly, ugly number. It shows a considerable slowdown in economic activity,” said Boris Schlossberg, director of research at online currency trader GFT Forex in New York. “The Aussie dollar is tumbling very badly because it’s clearly reacting to the negative risk news of the day.”

The Institute for Supply Management’s index of U.S. non- manufacturing business increased to 54.6 in May from 52.8 a month earlier. The median forecast of 74 economists surveyed by Bloomberg News projected the measure would rise to 54.

The Fed has kept its benchmark interest rate at a record low of zero to 0.25 percent since December 2008. Futures contracts show the likelihood of an increase in the fed funds target by the central bank’s March 2012 meeting fell to 23 percent today, from 26 percent yesterday. The Federal Open Market Committee meets June 22.

The European Central Bank raised its rate by 25 basis points in April and may increase rates again when it meets in July, a Bloomberg survey showed.

European Manufacturing

Factory-gate prices in the euro region rose 0.9 percent in April from the previous month, the European Union’s statistics office in Luxembourg is forecast to say on June 6, according to a Bloomberg News survey.

EU and International Monetary Fund officials agreed to pay the next installment to Greece under last year’s bailout, paving the way for an upgraded aid package that includes a “voluntary” role for investors. Greece’s government said a review of the country’s economic progress concluded “positively.”

“I expect the eurogroup to agree to additional financing to be provided to Greece under strict conditionality,” Luxembourg’s Juncker said after meeting with Greek Prime Minister George Papandreou in Luxembourg today. “This conditionality will include private sector involvement on a voluntary basis.”

--With assistance from James Neuger in Brussels. Editors: Paul Cox, Dennis Fitzgerald

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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