Bloomberg News

Euro Rises to 7-Week High Versus Yen on Greek Debt-Talk Progress

February 09, 2012

Feb. 8 (Bloomberg) -- The euro rose to a seven-week high against the yen on speculation Greece is making progress on measures needed to win international aid, boosting demand for the shared currency.

The euro touched a two-month high against the dollar before Greek Prime Minister Lucas Papademos meets political leaders in Athens to hammer out financing to avert a collapse of the economy. The yen weakened versus all of its major peers as data showed Japan’s current-account surplus slid to a 15-year low in 2011. New Zealand’s dollar reached a five-month high while its Australian peer rose to its strongest level in six months as stock gains stoked demand for higher-yielding assets.

“We are still waiting for a deal from Greece but the market continues to view Greece with a glass-half-full approach,” said Jane Foley, a senior currency strategist at Rabobank International in London. This is leading to a “better tone for the euro,” she said.

Europe’s 17-nation currency rose 0.4 percent to 102.20 yen at 07:11 a.m. New York time, after earlier touching 102.45, the strongest level since Dec. 21. The euro was little changed at $1.3275, after reaching $1.3289, the most since Dec. 12. The yen weakened 0.3 percent to 76.93 per dollar.

Greece’s Papademos yesterday met officials from the European Commission, the European Central Bank and the International Monetary Fund to put the final touches on terms required for a 130 billion-euro bailout.

‘Constructive Talks’

He also held “constructive” talks with Charles Dallara, managing director of the International Institute of Finance, which has negotiated the terms of a debt-swap deal with private bondholders, and Deutsche Bank AG Chairman Josef Ackermann, the IIF said in a statement.

The euro has climbed 0.4 percent in the past week, according to Bloomberg Correlation-Weighted Indexes. Still, it’s fallen 3.9 percent over the past three months, the worst performance among the 10 developed-nation currencies tracked by the indexes, as the region’s sovereign-debt crisis damped demand for the currency. The dollar rose 0.5 percent in the period and the yen advanced 1.7 percent.

The yen dropped after the Finance Ministry in Tokyo said Japan’s current-account surplus shrank 44 percent in 2011 from the previous year to 9.63 trillion yen, the lowest since 1996.

Japan Data

“Data on Japan’s current-account balance is probably a selling catalyst for the yen” in the immediate term, said Kengo Suzuki, a foreign-exchange strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s No. 3 listed bank by market value. “The narrowing surplus is seen as signifying structural change in Japan’s external trade.”

The euro may decline almost 10 percent to $1.20 by the end of the year as the currency bloc slips into a recession, said Adrian Lee, chief investment officer at currency portfolio manager Adrian Lee & Partners, which oversees $8.5 billion of assets.

The ECB will need to take further measures to boost the economy, weakening the currency, Lee said today in an interview in London.

The Stoxx Europe 600 Index rose 0.3 percent.

Australia’s dollar climbed 0.2 percent to $1.0827 and earlier touched $1.0844, the strongest level since Aug. 2. New Zealand’s currency rose 0.3 percent to 83.85 U.S. cents, after reaching 83.90 cents. That’s the highest since Sept. 5.

Global Growth

Higher-yielding currencies have surged in 2012 as signs global growth is accelerating boosted demand for assets that appreciate in periods of economic expansion.

The Reserve Bank of Australia kept its key interest rate at 4.25 percent yesterday, compared with a rate of near zero at the Federal Reserve. The so-called Aussie dollar has strengthened 6.1 percent against the greenback this year.

The implied volatility of three-month options of Group of Seven currencies was at 10.18 percent from 10.20 percent yesterday, according to the JPMorgan G7 Volatility Index. A decrease makes investments in currencies with higher benchmark lending rates more attractive because the risk in such trades is that market moves will erase profits. The index has dropped from 12.35 percent on Dec. 30 and reached 10.06 percent on Jan. 23, the least since March.

The franc depreciated to its weakest level in three weeks after Swiss central bank interim Chairman Thomas Jordan said yesterday the currency remains “very strong.” Policy makers can’t allow it to appreciate beyond their 1.20 francs per euro limit for the exchange rate, he said.

“Jordan was adamant that the floor would remain in place,” said Michael Sneyd, a currency strategist at BNP Paribas SA in London. This has helped weaken the franc, he said.

The currency slid 0.2 percent to 1.2115 per euro, after reaching 1.2128, the weakest level since Jan. 18.

--With assistance from Yumi Teso in Bangkok and Masaki Kondo in Singapore. Editors: Mark McCord, Nicholas Reynolds

To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net

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


The Good Business Issue
LIMITED-TIME OFFER SUBSCRIBE NOW