Bloomberg News

Euro Drops on Greek Debt-Talk Concern Before U.S. Jobs Data

February 02, 2012

Feb. 2 (Bloomberg) -- The euro fell against the majority of its most-traded counterparts as Greece struggles to reach an agreement with its bondholders on cutting the nation’s debt burden.

The 17-nation currency fell the most against its higher- yielding counterparts, as South Korea’s won and the Brazilian real rallied. The yen rose to almost a postwar high against the dollar, prompting speculation Japan will intervene. The dollar rose before a report tomorrow that may show employers boosted payrolls in January and the jobless rate held at an almost three-year low.

“It’s pretty well capped for the time being because we had several days in a row where the euro failed to advance above $1.32,” said Carl Forcheski, a director on the corporate currency sales desk at Societe Generale SA in New York. “The market before payrolls data just doesn’t seem to have the momentum to break out in either direction. It wants to see what tomorrow’s data will be.”

The euro fell 0.1 percent to $1.3144 at 5 p.m. in New York after rising to $1.3197 earlier. The shared currency weakened 0.1 percent to 100.18 yen. The Japanese currency was little changed at 76.22 yen per dollar and reached 76.05, approaching the postwar record of 75.35 set on Oct. 31.

Support for the euro comes in at its 10- and 50-day moving averages, at $1.3095 and $1.3059 respectively, Forcheski said. The currency rose to as high as $1.3234 on Jan. 30.

‘Popular Trades’

The won rallied 0.7 percent to 1,118.35 per dollar and Brazil’s real gained 0.9 percent to 1.7189 against the greenback.

“Some of the emerging-market vehicles that have been very popular trades this year are definitely doing rather well,” said Alan Ruskin, global head of Group-of-10 foreign-exchange strategy at Deutsche Bank AG in New York.

The carry trade of selling the dollar to buy the currencies of Australia, Mexico, Brazil and South Korea has more than doubled returns so far this year, compared with a loss of 1.8 percent during 2011.

The single currency weakened earlier as Greece and its creditors remain locked in talks over a debt-swap deal for the nation. Bondholders last week lowered their demands for an average coupon on the new debt they would get after European officials demanded they take steeper losses. The European Central Bank will probably to refuse to show its hand on how it will help cut Greece’s debt burden until the deal is reached, said economists from ING Group to Deutsche Bank AG.

‘Ultra Difficult’

“We are skewed to the point where Europe would react more to negative news at this stage if it were to get any, and could drift on no news,” said Kit Juckes, head of foreign-exchange research at Societe Generale SA in London.

Luxembourg Prime Minister Jean-Claude Juncker said steps to tackle the debt crisis adopted at a summit on Jan. 30 were “largely insufficient.” European Union leaders will need to take further steps when they convene again in early March, Juncker, who leads the group of euro-area finance ministers, said in a speech in Luxembourg today. He said he seeks better coordination of economic policy across the bloc and that Greek bond-swap talks with private creditors are “ultra difficult.”

China’s Premier Wen Jiabao said his nation supports European efforts to stabilize the 17-nation currency. China is still researching the best way to participate in the European Financial Stability Facility, Wen said at a briefing with German Chancellor Angela Merkel in Beijing.

Speculative Moves

Japanese Finance Minister Jun Azumi said he “can’t overlook” speculative moves in the foreign-exchange market and is ready take “decisive” actions if necessary. The Japanese ministry sold the yen on Oct. 31 on concern its advance to a record will hurt earnings at exporters.

“If the dollar-yen falls quickly then the Ministry of Finance might decide to intervene again,” said You-Na Park, a foreign-exchange strategist at Commerzbank AG in Frankfurt. “Until then, we will hear continued verbal intervention since the yen is quite strong.”

The yen has gained 6 percent over the past six months, the second-best performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar rose 6.5 percent, and the euro dropped 2.8 percent.

Applications for unemployment insurance payments in the U.S. dropped by 12,000 to 367,000 in the week ended Jan. 28, Labor Department figures showed today in Washington. The median forecast of 46 economists in a Bloomberg News survey projected 371,000. Economists forecast a Labor Department report tomorrow may show employers boosted payrolls in January and the jobless rate held at an almost three-year low.

Bernanke’s View

Fed Chairman Ben S. Bernanke said the economy has shown signs of improvement while remaining vulnerable to shocks, and he called on lawmakers to reduce the long-term U.S. budget deficit.

“Fortunately, over the past few months, indicators of spending, production, and job-market activity have shown some signs of improvement,” Bernanke said today, according to prepared testimony to the House Budget Committee in Washington. “The outlook remains uncertain, however, and close monitoring of economic developments will remain necessary.”

The dollar may weaken a further 1.5 percent against the yen after breaching a key trading level, Karen Jones, head of fixed- income, commodity and currency technical analysis at Commerzbank AG in London AG, said, citing trading patterns.

“Dollar-yen has eroded the key Fibonacci retracement at 76.20,” she wrote in an e-mailed report. “This leaves the market on the defensive and refocuses attention back to the 75.31 low and potentially psychological support at 75.”

The franc weakened against all except two of its 16 major counterparts amid talk of possible intervention by the Swiss National Bank. The SNB in September said it would cap the franc at 1.20 against the euro after it reached a euro-era record 1.00749 the previous month.

The franc was little changed at 1.20503 per euro and dropped 0.2 percent to 91.68 centimes per dollar.

--Editors: Kenneth Pringle, Paul Cox

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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