Bloomberg News

Euro Strengthens as Merkel, Sarkozy Support Greek Debt Effort

September 14, 2011

Sept. 14 (Bloomberg) -- The euro rose against the majority of its most-traded counterparts after French President Nicolas Sarkozy and German Chancellor Angela Merkel said Greece should remain in the union, damping concerns of turmoil in the region.

The 17-nation currency extended its gains against the dollar after Greece reaffirmed commitment to its budget plan following a conference call among the leaders of Germany, France and Greece. The yen approached a post-World War II record against the dollar after U.S. retail sales unexpectedly stagnated in August, increasing concern the nation’s economic recovery is faltering.

“Sarkozy and Merkel are saying they’re convinced that Greece should remain in the euro zone and that’s giving it some support,” said John Doyle, a strategist in Washington at currency-trading firm Tempus Consulting Inc. “Greece reiterating that they’re determined to meet their budget plan is a good thing. They’re just words at this point, but that’s why we’re seeing the euro pop against the dollar.”

The euro rose 0.6 percent to $1.3755 at 5 p.m. in New York, after rising the most on an intraday basis, 0.8 percent, since Sept. 7. The currency added 0.1 percent to 105.39 yen. The yen strengthened 0.4 percent to 76.62 per dollar.

Greek Talks

Sarkozy and Merkel are “convinced” Greece should remain in the euro, Sarkozy’s office said in a statement today after the leaders met with Greek Prime Minister George Papandreou. Papandreou committed to meet deficit-reduction targets demanded as a condition for an international bailout, according to statements distributed by Athens and Paris.

“The president of the republic and the chancellor have underscored that it is more than ever indispensable to fully implement the decisions adopted on July 21 by the heads of state and government of the euro zone to assure the stability of the euro zone,” the statement said.

The yen strengthened for a third straight day against the dollar, approaching its record of 75.95 reached Aug. 19.

Bank of Japan board member Ryuzo Miyao said the central bank is ready to take “appropriate” action as needed to support the economy amid worries that the yen will stay strong.

“An area of concern is that the strong yen is taking root,” Miyao, 47, said in a speech in Hakodate, northern Japan. If the dollar and euro remain weak against the yen on sovereign- debt worries, “concern about the hollowing-out of domestic industries will increase,” he said.

Yen Sales

Japan last intervened in the currency market, selling yen to try to curb its climb, on Aug. 4, when it touched 76.97 to the dollar.

The Japanese currency has appreciated 3.6 percent this year against the currencies of its nine developed-nation counterparts, according to Bloomberg Correlation-Weighted Currency Indices. The Swiss franc has appreciated the most among the currencies, rising 4.5 percent. The euro has risen 0.2 percent and the dollar has lost 2.8 percent.

The euro was boosted earlier after European Commission President Jose Barroso said he is close to proposing options on joint euro-area bond sales, putting officials in Brussels on a collision course with Germany.

“The commission will soon present options for the introduction of euro bonds,” Barroso told the European Parliament in Strasbourg, France, today, prompting applause from lawmakers who have backed the idea. “Some of these options could be implemented within the terms of the current treaty; others would require treaty change.”

Euro Funds

European Union leaders in July proposed expanding the role of the 440 billion euro ($602 billion) EFSF -- the fund that has helped bail out Greece, Ireland and Portugal -- to buy bonds in the secondary markets, aid troubled banks and offer lines of credit. The plan will go into effect after the parliaments of member nations approve it.

Austria’s parliament’s finance committee rejected adding the item to the agenda of a meeting today. The parliament will call a special meeting for the finance committee that will have the item on the agenda, according to Harald Waiglein, a spokesman for the ministry.

“It feels like the euro leaders really want to make the Greek deal happen,” said Boris Schlossberg, director of research at online currency trader GFT Forex in New York. “If they can avoid a Greek bankruptcy, it effectively lifts that black cloud over the euro. The moment traders sensed that the bankruptcy wasn’t imminent, they started buying up the euro on a short-term basis.”

China View

Caijing magazine reported that China is still willing to buy bonds of nations hit by the debt crisis, citing Zhang Xiaoqiang, a vice chairman of the National Development and Reform Commission.

China’s Premier Wen Jiabao signaled developed nations should cut deficits and create jobs rather than relying on his country to bail out the world economy. The European Union and the U.S. should open their markets in return for investments, Wen said today.

Australia’s currency weakened against the greenback after the statistics bureau released new methodology for calculating seasonally adjusted inflation that indicated the Reserve Bank of Australia’s core measures may have been lower last quarter.

The Aussie slid 0.3 percent to $1.0283, after earlier reaching $1.0178, the least since Aug. 11. It dropped 0.7 percent to 78.80 yen.

U.S. retail sales were unchanged in August, following a 0.3 percent gain for July that was smaller than previously estimated, Commerce Department figures showed today in Washington. The median forecast of 83 economists surveyed by Bloomberg News was a 0.2 percent rise.

“What we need to see in order to rescue the market from a reactive course is a clear trend in hard economic data, and retail sales definitely wasn’t there,” said Andrew Cox, a currency strategist at Citigroup Inc. in New York.

--Editors: Paul Cox, Greg Storey

To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Lucy Meakin in London at lmeakin1@bloomberg.net

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


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