Euro Erases Gain, S&P Says Greece May Go to Selective Default
July 04, 2011, 2:37 AM EDTBy Yoshiaki Nohara and Monami Yui
July 4 (Bloomberg) -- The euro erased gains versus the yen and the dollar after Standard & Poor’s Rating Services said the debt rollover plan for Greece may put the country in “selective default.”
The 17-nation currency had advanced 0.4 percent earlier against the dollar on speculation the European Central Bank will increase interest rates this week. Thailand’s baht rose after an election victory by allies of former premier Thaksin Shinawatra spurred optimism foreign investors will return. Australia’s dollar weakened after reports showed retail sales and building approvals fell.
“The euro is being sold as the market reacted to the S&P headline,” said Kumiko Gervaise, an analyst in Tokyo at Gaitame.com Research Institute Ltd., a unit of Japan’s largest online currency margin-trading company. “Whenever rating companies say that Greece is going to default, the euro is likely to be sold.”
The shared currency fell to 117.26 yen as of 6:49 a.m. in London from 117.42 yen in New York on July 1, after appreciating to 117.74 yen, the highest level since June 8. The euro was at $1.4523 from $1.4526, after advancing to $1.4578, the strongest since June 9. The dollar traded at 80.74 yen from 80.83 yen.
Options Equal Default
Europe is inching toward a goal of getting banks to roll over 30 billion euros ($44 billion) of Greek bonds, instead of opening a hole for the official lenders to fill. French banks, with the biggest exposure to Greece, worked out a rollover formula that is serving as an example elsewhere.
“It is our view that each of the two financing options described in the Federation Bancaire Francaise proposal would likely amount to a default under our criteria,” S&P said in the statement today.
The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, fell 0.1 percent to 74.290 after sliding to 74.111, the lowest since June 10. U.S. financial markets are shut today for Independence Day. default.’’
European finance ministers on July 2 authorized an 8.7 billion-euro ($12.6 billion) loan payout to Greece by mid-July after the nation’s parliament passed austerity measures. Finance chiefs gather next week to discuss a long-term lifeline for Greece.
ECB Rate Increase
The ECB on July 7 will increase its benchmark rate to 1.5 percent from 1.25 percent, according to all 54 economists surveyed by Bloomberg News.
“With further rate hikes this year not fully priced in, if this occurs, the euro may push higher following the rate hike,” Sara Yates, a London-based foreign-exchange strategist at Barclays Plc, wrote today in a note to clients. “We prefer taking a long euro position at the start of the week, but recommend that investors switch to selling rallies in the latter half of the week.”
The baht strengthened against all of its major counterparts on speculation the decisive election win by Thaksin’s allies will bring stability to the nation. Clashes between his supporters and opponents have claimed more than 100 lives since the previous poll in 2007.
“The majority victory is a very welcome outcome and foreign investors will come back very quickly,” said Frances Cheung, senior strategist at Credit Agricole CIB in Hong Kong.
The baht rose 0.8 percent to 30.47 per dollar, after climbing to 30.40, the strongest level since June 22. Credit Agricole predicts the baht will advance to 29.20 by year-end.
Aussie Weakens
Australia’s dollar snapped a four-day gain after the Bureau of Statistics said retail sales fell 0.6 percent and building approvals declined 7.9 percent in May. Reserve Bank of Australia policy makers will leave the benchmark rate unchanged at 4.75 percent tomorrow, according to all 28 economists surveyed by Bloomberg News.
“The reports reflect the weak spots in the economy and add to our view that the RBA will delay any rate hike till later this year,” said Besa Deda, chief economist at St. George Bank Ltd. in Sydney. “Retail sales is one of the critical economic releases and will add to the story that the economy is going through a soft patch, so you might see the Australian dollar sell-off further.”
Australia’s currency fell 0.4 percent to $1.0723, and dropped 0.5 percent to 86.58 yen.
--With assistance from Anuchit Nguyen and Yumi Teso in Bangkok and Kim Kyoungwha in Singapore. Editors: Jonathan Annells, Nicholas Reynolds
To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
