Bloomberg News

Dollar Gains as Greek Debt-Talk Stalemate Spurs Safety Demand

January 24, 2012

Jan. 24 (Bloomberg) -- The dollar rose, reaching the highest level this year against the yen, as European policy makers and Greek bondholders failed to reach an agreement on a debt-swap plan for the indebted nation, spurring safety demand.

The yen fell against all of its 16 major peers tracked by Bloomberg after the Bank of Japan cut its economic growth forecast for next year. The euro reached the highest level in almost four weeks against the yen earlier after a report showed European services and manufacturing industries unexpectedly expanded in January. The pound rose against most peers after a report showed the budget deficit shrank in December more than predicted.

“The market got off to a bit of a poor footing in terms of the formal rejecting of the Greek private sector investment plans,” said Ray Attrill, a senior currency strategist at BNP Paribas SA in New York. “We did have a spike up in dollar-yen and it looked to be future positioning. The euro has held up better than some of the other higher-beta Group of 10 currencies.” High-beta currencies tend to have the greatest volatility.

The dollar rose 0.8 percent to 77.67 yen at 5 p.m. in New York and touched 77.85, the highest level since Dec. 29. The greenback dropped 0.2 percent to $1.3036 per euro. The common currency rose 1 percent to 101.25 yen.

Currency Pattern

The dollar has appreciated 7.2 percent in the past six months against nine developed-nation counterparts, according to Bloomberg Correlation-Weighted Currency Indexes. The yen has gained 6.4 percent and the euro has dropped 3.4 percent.

McDonald’s Corp., the world’s largest restaurant chain, said forecast fluctuations would reduce profit this year. Currency changes may cut 2012 profit per share by 16 cents to 18 cents, driven by the weaker euro, Chief Financial Officer Peter Bensen said today on a conference call with analysts.

McDonald’s doesn’t provide annual profit forecasts. The average estimate of 25 analysts surveyed by Bloomberg was for 2012 profit of $5.73 a share.

The yen’s slump gained further momentum after breaking through the 70.40 yen per dollar level, which was a key technical level, Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in London, said in an e-mail.

Central Bank Move

India’s rupee rose past 50 per dollar for the first time since November as the central bank cut the amount of deposits lenders need to set aside as reserves for the first time since 2009 and signaled future interest-rate cuts, joining Russia, China and Brazil in shielding growth. The Reserve Bank of India left the benchmark repurchase rate at 8.5 percent for a second month.

The rupee was little changed at 50.0687 per dollar, according to data compiled by Bloomberg. It rose as much as 0.3 percent to 49.9250 earlier, the strongest level since Nov. 14.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, was little changed at 79.787.

Price swings in Group of Seven currencies climbed to 10.49 percent today after falling to 10.06 percent yesterday, the least since March 2011, according to the JPMorgan G7 Volatility Index. A lower reading makes investments in currencies with higher lending rates more attractive as the risk in such trades is that market moves will erase profit.

Less Risk

“It looks like there’s a little bit of a pullback in risk seeking,” said Brian Kim, a currency strategist in Stamford, Connecticut, at Royal Bank of Scotland Group Plc. “There’s still some overhand from the Europe situation on broader risk appetite.”

A euro-area composite index based on a survey of purchasing managers in both manufacturing and services industries rose to 50.4 from 48.3 in December, London-based Markit Economics said today. Economists predicted 48.5 in a Bloomberg survey. A reading above 50 indicates an expansion.

European Union Economic and Monetary Affairs Commissioner Olli Rehn said a “moderate recession” is indicated in the first half of this year and that a return to economic growth is “likely to be postponed to the second half of this year.”

The International Monetary Fund cut its forecast for the global economy as Europe slips into a recession and growth cools in China and India. The world economy will expand 3.3 percent this year and 3.9 percent in 2013, compared with September forecasts of 4 percent and 4.5 percent, the IMF said.

Borrowing Numbers

U.K. net borrowing excluding support for banks was 13.7 billion pounds in December compared with 15.9 billion pounds a year earlier, the Office for National Statistics said today. Economists surveyed by Bloomberg forecast 14.9 billion pounds.

The pound rose 0.4 percent to $1.5626 and appreciated 0.2 percent to 83.42 pence per euro.

Bank of England Governor Mervyn King said slower inflation gives policy makers room to increase bond purchases to aid the U.K. economy and guard against a “renewed severe downturn.” He spoke in a speech today in Brighton, England.

European finance ministers meeting in Brussels signaled they would push Greece’s private investors to accept bigger losses after Charles Dallara, managing director of the Institute of International Finance, made what he described as the bondholders’ “maximum” offer. Euro area governments are seeking to fill a deeper-than-expected hole in Greece’s finances by saddling investors with a lower interest rate on exchanged bonds, setting up a confrontation before a European Union summit on Jan. 30.

The 17-nation currency also fell after Standard & Poor’s cut the credit ratings of Societe Generale, France’s second- largest bank by market value, and Credit Agricole SA, the third- largest, to A from A+ with stable outlook.

Financial markets in Asian countries including China and South Korea were shut today for the Lunar New Year holiday.

--Editors: Paul Cox, Dave Liedtka

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

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


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