Bloomberg News

Euro Rises to Three-Week High Versus Dollar on Greek Debt, ECB

June 30, 2011

June 30 (Bloomberg) -- The euro touched the highest in almost three weeks against the dollar on prospects the European Central Bank will increase interest rates next week to curb inflation and as European ministers are set to approve the next aid payment due to Greece.

Riskier assets advanced against the Swiss franc and the dollar after German financial firms agreed to roll over Greek debt holdings. Greek Prime Minister George Papandreou won approval of a second bill to authorize his 78 billion-euro ($113 billion) package of budget cuts and asset sales, a key to receiving further international financial aid. The Dollar Index fell even as the Federal Reserve ended its second round of quantitative easing.

“The euro is higher after Greece passed the implementation bill for austerity measures this morning, providing a bit more relief,” said Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc. in New York. “Greece seems to have accepted it needs to tackle its problem and bank rollovers are leading to better sentiment.”

The euro rose 0.5 percent to $1.4502 at 5 p.m. in New York. It touched $1.4538, the highest level since June 10. The euro gained 0.2 percent versus the Japanese currency to 116.84 yen. The euro gained 0.7 percent against the dollar this month and is up 2.4 percent in the quarter that ends today.

German Rollover

German banks have agreed to roll over about 2 billion euros in the Greek bonds they’re holding that mature through 2014, German Finance Minister Wolfgang Schaeuble said today. Papandreou garnered the support from 155 lawmakers in the 300- strong chamber, with 136 voting against, Deputy Parliament Speaker Grigoris Niotis said in remarks carried live on state- run Vouli TV today.

The Swiss franc, a traditional haven from financial turmoil, fell against all 16 of its major peers. It depreciated 1.2 percent against the euro to 1.21876 and was weakened 0.7 percent to 84.04 centimes per dollar, from 83.42.

ECB President Trichet today repeated that policy makers are in a state of “strong vigilance” ahead of the July 7 meeting, a phrase he has used before tightening monetary policy in the past.

ECB Forecast

Investors anticipate the ECB will add 70 additional basis points to its benchmark interest rate in the next 12 months, according to a Credit Suisse Group AG index based on swaps. That compares with 46 basis points yesterday.

The yen pared gains the dollar after the Institute for Supply Management-Chicago Inc. said today its business barometer unexpectedly rose to 61.1 in June from 56.6 a month earlier. Figures greater than 50 signal expansion.

“Chicago PMI massive surprise top side, new orders sharply up inventories down,” said Sebastien Galy, a senior foreign- exchange strategist at Societe Generale SA in London. “That would confirm the manufacturing shock thesis. It’s risk on, U.S. dollar down and dollar-yen tempted to drift higher with U.S. Treasury yields.”

The dollar was 0.3 percent weaker against the yen at 80.56 after falling as much as 0.6 percent and gaining as much as 0.1 percent.

IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against currencies from six major U.S. trading partners, dropped 0.4 percent to 74.691, after touching the lowest since June 14.

The Fed bought $4.9 billion of notes due from June 2017 to June 2018, marking completion of the central bank’s effort to add $600 billion to the economy.

Stocks, Bonds

The Standard & Poor’s 500 Index advanced 1 percent in its fourth day of gains. U.S. 10-year yields rose five basis points or 0.05 percentage point, to 3.16 percent.

Canada’s dollar advanced 0.6 percent against the dollar to 96.34 cents per U.S. dollar, from 96.95. Crude oil, the nation’s largest export gained 0.4 percent to $95.12 a barrel in the third day of gains.

South Korea’s won was the best performer against the U.S. currency as factory output beat economists estimates today..

The won climbed as much as 0.9 percent to 1,067.65 per U.S. dollar, the highest in almost two months, gaining 2.7 percent for the quarter, the best performance among Asia’s 10 most- active currencies.

Sterling weakened versus 13 of its 16 major peers as U.K. consumer confidence fell more than forecast and mortgage demand is predicted to fall in the third quarter. The euro strengthened to a 15-month high against the pound amid bets the Bank of England will be restrained in increasing interest rates compared with the ECB.

The pound weakened for a fourth day against the euro, depreciating as much as 0.5 percent to 90.34 pence, the least since March 16, 2010. It was little changed versus the dollar at $1.6053, touching less than $1.60 for the sixth successive day.

The sputtering economy has investors betting the central bank will raise borrowing costs May 2012, according to forward contracts on the sterling overnight interbank average, data from Tullett Prebon Plc show. As recently as February, traders were betting on a rate increase in May of this year, the data showed.

--With assistance from Lucy Meakin and Garth Theunissen in London, Aaron Kirchfeld in Frankfurt, Kyoungwha Kim in Singapore, Mark Deen in Paris and Rainer Buergin in Berlin. 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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