Bloomberg News

Euro Gains as Stocks Climb on Outlook for Greek Confidence Vote

June 21, 2011

June 21 (Bloomberg) -- The euro gained against the dollar and yen as investors speculated Greek Prime Minister George Papandreou will win a confidence vote in parliament today, a key step toward getting more aid for the Mediterranean nation.

The greenback dropped against all of its 16 most-traded counterparts as stocks and commodities rose and the Federal Reserve began a two-day policy meeting.

“The government in Greece is going to give the go-ahead -- they recognize that the market needs to believe that Greece is going to get that $12 billion tranche,” said Jessica Hoversen, an analyst in New York at the futures broker MF Global Holdings Ltd.

The euro rose 0.7 percent to $1.4408 at 4:52 p.m. in New York, from $1.4304 yesterday. The euro gained 0.7 percent against the yen to 115.59, from 114.80, and was little changed at 1.2111 per franc after reaching a record low versus the Swiss currency at 1.1947 on June 16.

The U.S. currency traded little changed at 80.23 yen, compared with 80.25 yesterday.

Europe’s shared currency remained stronger even after the International Monetary Fund said in a report that Spain’s efforts to repair its economy are “incomplete” and that risks are “considerable.” It reached its high of the day, $1.4423, after touching its 50-day moving average of $1.4416.

U.S. Interest Rates

Sales of existing homes in the U.S. decreased in May to the lowest level in six months, an annual pace of 4.81 million, National Association of Realtors data showed today. The report followed data from the New York and Philadelphia Fed Banks last week showing manufacturing in those regions shrank this month.

The Federal Open Market Committee will keep its benchmark interest rate at zero to 0.25 percent tomorrow, where it’s been since December 2008, a Bloomberg News survey forecast.

Futures show the likelihood that policy makers will increase the target rate by March 2012 dropped to 21 percent, from 30 percent a month ago.

“The slowdown we’ve seen has pushed out the expected Fed tightening,” said Steven Englander, head of Group of 10 currency strategy at Citigroup Inc. in New York. “We’ve had two and a half months of data and the timing of expected Fed tightening is pushed out by 10 months. The market may be extrapolating the softness for a longer period than they have any right to.”

Dollar Index

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, fell 0.5 percent to 74.593, from 75.029.

The Standard & Poor’s 500 Index gained 1.3 percent, and the MSCI World Index climbed 1.6 percent. The Thomson Reuters/Jefferies CRB Index of raw materials increased 0.6 percent. Crude oil rose as much as 1.6 percent to $94.74 a barrel in New York before trading at $93.40.

Canada’s dollar advanced the most in a week versus the greenback. Raw materials including crude oil account for about half of the nation’s export revenue. The currency gained 0.8 percent to 97.25 cents per U.S. dollar after earlier rising as much as 0.9 percent.

The euro rose versus most major currencies as Greece’s Papandreou seeks to secure multiparty support for his government’s austerity measures, a condition for receiving aid needed to avoid a default. He called last week for the confidence vote, due at 5 p.m. today New York time, after opposition parties rejected pleas for national consensus and his handling of the crisis led to defections from his party.

Budget-Cut Package

Greece needs parliamentary approval of a 78 billion-euro ($112 billion) package of budget cuts and asset sales to ensure the payment of the full 12 billion euros due in July under last year’s 110 billion-euro bailout from the European Union and IMF.

Luxembourg’s Jean-Claude Juncker assured investors yesterday that a solution will be found to Greece’s debt crisis.

“Some of the fears of broader global, economic and financial disruption as a result of a Greek default are priced out a little bit, and market participants are tiptoeing back into risk,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “The play leading into the confidence vote has been to buy euros; the yes vote is priced in now.”

Implied volatility for one-week Euro-U.S. dollar options has slumped 195 basis points to 13 percent over the past three days. It closed at 14.98 percent on June 16, the highest level since May 6. Implied volatility, which traders quote and use to set option prices, signals the expected pace of swings in the underlying currency. A basis point is 0.01 percentage point.

The pound weakened 0.5 percent to 88.70 pence per euro and rose 0.3 percent to $1.6246 after Bank of England Markets Director Paul Fisher said further bond purchases to stimulate the economy are possible.

--With reporting by Catarina Saraiva in New York. Editors: Greg Storey, 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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