Dollar, Yen Decline on Optimism About European Debt Crisis Steps
September 27, 2011, 5:30 PM EDTBy Catarina Saraiva and Garth Theunissen
Sept. 27 (Bloomberg) -- The dollar and the yen declined as stocks rallied around the world on optimism European leaders are close to an agreement to contain the region’s debt crisis, damping demand for refuge.
The euro gained for a third day versus the dollar after German Chancellor Angela Merkel said her nation would help Greece meet the terms of its bailout agreement and Greek Prime Minister George Papandreou won support in parliament for an expansion to the region’s rescue fund. South Africa’s rand, South Korea’s won and Mexico’s peso were among the best performers against the greenback.
“Incrementally, there seems to be momentum toward a new bailout or something along those lines and the markets are reacting positively,” said Jessica Hoversen, a New York-based analyst at the futures broker MF Global Holdings Ltd. “However, I think the gains are short lived. We hear these claims and they stoke the fire, but without any action they’re not going anywhere.”
The dollar fell 0.4 percent against the 17-nation euro to $1.3591 at 5:03 p.m. in New York. The greenback rose 0.6 percent to 76.81 yen.
Leaders, Losers
The U.S. currency weakened 2.3 percent to 7.8679 rand, and lost 1.6 percent to 1,173.55 Korean won. Mexico’s peso rose 1.3 percent to 13.3658 U.S. cents. Australia’s dollar advanced 0.8 percent to 99.08 U.S. cents, and added 1.4 percent to 76.10 yen.
The Standard & Poor’s 500 Index gained as much as 2.8 percent and the MSCI World Index, a measure of equities in developed nations, advanced as much as 3.8 percent. The Thomson Reuters/Jefferies CRB Index of raw materials rallied 2.7 percent.
Investors bought the most dollars last week since June, according to Bank of America Corp. flow data. The dollar buying was led by selling of emerging-market currencies, though positions still remain high in those assets, currency strategists at Bank of America Merrill Lynch led by Richard Cochinos wrote in a note to clients.
Foreign exchange traders were net long the dollar against eight of its most-traded counterparts for the first time since July 2010 in the week ended Sept. 20, the Commodity Futures Trading Commission reported last week. A long position is a bet an asset will increase in value.
Bloc Rally
“It’s not a coincidence that the dollar-bloc currencies are rallying, they’ve lost the most in the past few days,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. “The fact that the European stock market is up for the third consecutive day, risk is coming back on.”
The euro has lost 5.2 percent against the yen this month, set for the sharpest monthly drop since May 2010. The shared currency’s 10.4 percent decline versus the yen during the past three months is the worst since the quarter ended June 2010, when it also slumped against the dollar to a four-year low of $1.1877.
The yen has gained 9.9 percent in the past three months against a basket of nine developed-market peers, the best performer tracked by Bloomberg Correlation-Weighted Indexes. The dollar has appreciated 3.8 percent while the euro has depreciated by 1.8 percent.
Greece Help
Greece is ready to fulfill the conditions laid down by the so-called troika assessing Greek progress at meeting the terms of its international rescue, Merkel told reporters in Berlin today at a joint press briefing with Papandreou.
The Greek leader won a vote today in parliament to approve a new property tax, bolstering his chances of pushing through austerity cuts aimed at securing further international financial aid for the country. The vote also approved a bill to expand the European Financial Stability Facility, which was approved by euro zone members on July 21.
Greece became the eighth nation to ratify the changes to Europe’s rescue fund after Slovenia approved it earlier today. All 17 euro nations need to approve the changes before they can go into effect. Merkel said she remained confident of winning a majority among her coalition lawmakers for a vote on the EFSF in parliament on Sept. 29.
German Finance Minister Wolfgang Schaeuble declined to rule out further changes to the EFSF, saying that if we “have to enhance the EFSF” it will be done in the “most efficient way.” At the same time, he said that increasing the size of the fund would damage the AAA rating of some euro-area members.
Fund Discussions
“We’re seeing a lot of discussion on potential changes to the EFSF, but at this point nothing has been implemented,” said Brian Kim, a currency strategist in Stamford, Connecticut, at Royal Bank of Scotland Group Plc. “If there is any talk of solution, we would be cautious because there’s an implementation risk.”
The yen has strengthened against 15 of its 16 major counterparts this month, prompting concern Japan will intervene in the foreign-exchange market to halt its advance.
Japan is ready to take bold action on the currency if needed, Finance Minister Jun Azumi said today.
Japanese companies are “increasingly expressing their concern about the appreciation of the yen,” Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney, said in an interview on Bloomberg Television. “The pressure on the cabinet to do something and make some bold steps will increase in the days ahead, so the yen is another safe haven I’d be avoiding.”
--With assistance from Masaki Kondo in Singapore and Monami Yui in Tokyo. Editors: Paul Cox, Greg Storey
To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Garth Theunissen in London gtheunissen@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
