Bloomberg News

Euro Gains Against Most-Traded Peers on Greek Debt Reassurance

June 20, 2011

June 20 (Bloomberg) -- The euro rose against the majority its most-traded counterparts after European leaders reassured investors a Greek default on its debts can be avoided, easing concern about a spreading regional credit crisis.

The 17-nation shared currency erased declines as Luxembourg’s Jean-Claude Juncker said Greek Prime Minister George Papandreou had assured him the government would do everything ensure financial aid before a no-confidence vote at 5 p.m. New York time tomorrow. The Swiss franc remained higher against most its counterparts as German Finance Minister Wolfgang Schaeuble said any participation in the bailout by private investors would have to be voluntary. The Brazilian real gained as the country’s credit was upgraded.

“We’re taking the commentary as still muddling through, which is better for the euro than say, a default occurring tomorrow,” said David Mann, regional head of research for the Americas at Standard Chartered in New York. “People have got ultra-short term in their horizons. The most important thing now is the no confidence vote in Greece tomorrow.”

The euro traded at $1.4304 at 5 p.m. in New York, from $1.4306. It earlier declined as much as 0.8 percent to $1.4191. The shared currency gained 0.2 percent against the yen to 114.80 after falling 0.2 percent. The dollar gained 0.3 percent to 80.25 yen from 80.05.

Swiss Strength

The Swiss franc remained stronger, trading within two cents of the record low 1.19466 per euro reached June 16. The franc traded 0.3 percent stronger at 1.21063 per euro.

The Swiss currency is the biggest winner in the past month, according to the Bloomberg Correlation-Weighted Indexes, which tracks the currency against nine major trading partners. The franc has gained 3.6 percent followed by a 1.5 percent advance in the yen.

“I love the Swiss franc and it represents one of the favored safe havens,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp. “We will get below 1.20 versus the euro not only this week but throughout the summer.”

Brazil’s real gained as Moody’s Investors Service boosted its rating on Brazilian government debt to Baa2, the second- lowest investment grade. Moody’s rating increase for Brazil cited President Dilma Rousseff’s efforts to cut spending. It follows an upgrade by Fitch Ratings in April. Standard & Poor’s boosted its outlook on Brazil’s rating to positive last month.

The real strengthened as much as 0.3 percent to 1.5924 per dollar from 1.5978 on June 17.

Aussie, Kiwi

The U.S. currency rose against higher yielding counterparts such as the Australian and New Zealand dollars as strategists speculated that the Federal Reserve won’t signal a third round of quantitative easing after a meeting on June 22. The Federal Open Market Committee has kept its benchmark rate unchanged between zero and 0.25 percent since December 2008.

Investors expect a 17 percent chance the central bank will increase the rate at its January meeting, according to CME Group Inc. data, down from 21 percent a month ago.

Australia’s dollar slid 0.4 percent to $1.0582. Its New Zealand counterpart lost 0.3 percent to 81.01 U.S. cents.

The Reserve Bank of Australia will tomorrow release minutes of its June 7 meeting, at which policy makers left its benchmark interest rate at 4.75 percent for sixth meeting. Central bank Governor Glenn Stevens reiterated June 15 the RBA needs to raise interest rates “at some stage.”

Yen Falls

The yen snapped two days of gains versus the dollar after the Finance Ministry said Japan’s exports fell 10.3 percent in May from a year earlier. The median estimate of economists surveyed by Bloomberg News was for an 8.4 percent drop.

The stronger yen is hurting exports, which subtracted a net 0.2 percent from GDP in the first quarter of 2011. Many Japanese companies based their fiscal year forecasts on the yen trading at about 80 per dollar.

The difference in the number of wagers by hedge funds and other large speculators on an advance in the yen compared with those on a drop -- so-called net longs -- was 24,768 on June 14, the most since March 22. A long position is a bet an asset will rise.

Papandreou kicked off a three-day debate yesterday on the confidence motion in his government. He called for the vote last week after opposition parties rejected pleas for national consensus and the prime minister’s handling of the crisis led to defections from his party. Antonis Samaras, leader of New Democracy, the largest opposition party in Greece, repeated his call for elections.

Greece needs parliamentary approval of a 78 billion-euro package ($111.6 billion) of budget cuts to ensure the payment of a fifth loan under last year’s 110 billion-euro bailout.

The new Greek finance minister, Evangelos Venizelos, who was named in Papandreou’s cabinet overhaul three days ago, came to Luxembourg with a “strong commitment” to the planned cuts that provoked street protests last week.

“We think right now, given the political shuffling Papandreou initiated with the appointment of a key rival as finance minister, it’s all but certain he will survive the vote tomorrow,” said Paresh Upadhyaya, head of Americas G-10 currency strategy at Bank of America Corp. in New York. “If the no confidence vote passes that is a very strong sign the Greek vote will go in favor of passing the austerity measures and the privatization plan.”

--With assistance from Stephanie Bodoni in Luxembourg, Ben Bain and Liz Capo McCormick in New York. Editors: Paul Cox, Dave Liedtka

To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net

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


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