Bloomberg News

Euro Drops on Greek Debt-Talk Concern; Yen 1% From Postwar High

February 03, 2012

Feb. 2 (Bloomberg) -- The euro weakened versus the yen and the dollar as Greece struggled to reach an agreement with its bondholders on cutting the nation’s debt burden, adding to concern Europe’s crisis will deepen.

The common currency fell against 14 of its 16 major counterparts as Luxembourg Prime Minister Jean-Claude Juncker, who leads the group of euro-area finance ministers, said steps to tackle the debt crisis adopted at a summit on Jan. 30 were “largely insufficient.” The yen rose to within 1 percent of a postwar high against the dollar, prompting speculation Japan will intervene to limit the currency’s gains.

“There’s a growing fatigue in the market over the Greek deal,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “For weeks we’ve been hearing a deal is imminent and the market went risk-on yesterday in expectation there was going to be an agreement. This has failed to materialize and I sense the market is becoming a bit weary with the euro.”

The euro weakened 0.6 percent to 99.70 yen at 7:43 a.m. in New York having dropped 1.8 percent over the past five trading days. The common currency fell 0.5 percent to $1.3097. The yen rose as high as 76.06 per dollar, approaching the postwar record of 75.35 set on Oct. 31, before trading little changed at 76.11.

Greece and its creditors are 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 is likely 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.

Euro Vulnerable

“Potential vulnerability could come if the announcement is delayed,” BNP analysts led by Steven Saywell, London-based head of foreign-exchange strategy for Europe, wrote in a research note to clients.

European Union leaders will need to take further steps when they convene again in early March, Juncker said in a speech in Luxembourg today, adding that he seeks better coordination of economic policy across the bloc.

The euro also declined as Spanish bonds fell after a debt sale. Spain auctioned 4.56 billion euros of debt due in 2015, 2016 and 2017, just surpassing its target of 4.5 billion euros. That compares with a 6.61 billion-euro sale on Jan. 19, which was well above the target of 4.5 billion euros. The Spanish 10- year yield climbed seven basis points to 4.92 percent.

China’s Wen

The euro briefly erased losses after 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.

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.

Sharp Corp., Japan’s largest maker of LCD panels, yesterday forecast its worst annual loss since its founding a century ago, with its president saying exporting is “nearly impossible” with the strong yen.

‘Intervene Again’

“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 6.1 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 6.3 percent, and the euro dropped 2.4 percent.

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 three of its 16 major counterparts amid talk of possible intervention by the Swiss National Bank.

“The chatter is increasing whether the SNB will intervene before 1.20” per euro, said Elizabeth Gregory, a market strategist at Swissquote Bank SA in Geneva. “There’s still a lot of discussion about how the SNB defends the exchange-rate floor.”

The franc was little changed at 1.20454 per euro and dropped 0.4 percent to 91.89 centimes per dollar.

--With assistance from Keith Jenkins in London, Mariko Ishikawa in Tokyo and Masaki Kondo in Singapore. Editors: Nicholas Reynolds, Mark McCord

To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net


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