Bloomberg News

Euro Falls From 2-Month High as Greek Aid Held Up; Aussie Drops

February 13, 2012

Feb. 10 (Bloomberg) -- The euro fell from a two-month high against the dollar as European finance ministers withheld an aid package necessary to prevent the Greek economy from collapsing, damping demand for the region’s assets.

The shared European currency slid from the highest since December against the yen after the leader of one of the Greek government’s supporting parties said he couldn’t support an austerity accord needed to secure the bailout. The greenback strengthened against all but one of its 16 major peers as stocks slid. Australia’s dollar dropped for a third day after the nation’s central bank lowered its growth forecasts. Asian currencies had this year’s first weekly loss.

“The Greek deal wasn’t finalized overnight so that is a negative,” said Geoffrey Kendrick, head of European currency strategy at Nomura International in London. “We’re seeing the euro paring its gains for the week and I would expect it to come off a bit further today, maybe to sub $1.32.”

The euro was 0.7 percent weaker at $1.3196 at 7:39 a.m. New York time, paring its weekly advance to 0.3 percent. It reached $1.3322 yesterday, the strongest level since Dec. 12. Europe’s shared currency slipped 0.5 percent to 102.64 yen. The dollar was little changed at 77.73 yen. It earlier advanced to 77.76 yen, the strongest level since Jan. 26.

The yen has weakened 1.8 percent against the euro this week and fallen 1.5 percent against the dollar.

The 17-nation currency has lost 3.6 percent in the past six months as the region’s debt crisis deepened, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar has appreciated 4.3 percent in the same period.

‘No Disbursement’

Greek Finance Minister Evangelos Venizelos said his euro- area counterparts refused to approve a 130 billion-euro aid package because the government fell short of austerity demands. George Karatzaferis, the leader of Greece’s Laos party, said he couldn’t support an accord on cuts in its present form.

Greece is missing its debt-cutting targets and may fall short of its intended debt-to-gross-domestic product ratio, German Finance Minister Wolfgang Schaeuble told lawmakers in Berlin today, according to two people who took part in the meeting. Germany’s lower house of parliament, the Bundestag, will vote on a second Greek aid package on Feb. 27.

Greek lawmakers will vote on measures to cut spending this weekend in a ballot that Venizelos said amounts to a decision on membership of the currency union. Another extraordinary assembly of the euro-area ministers was set for Feb. 15.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, was 0.3 percent higher at 78.857.

Aussie Weakens

Australia’s currency slid versus most of its major peers after the nation’s central bank said it sees the economy expanding 3.5 percent this year, down from its Nov. 4 estimate of 4 percent. Consumer prices will rise 3 percent in the year through to the fourth quarter, less than a previous prediction of 3.25 percent, the Reserve Bank of Australia said in its quarterly monetary policy statement released today.

The so-called Aussie weakened 1.1 percent to $1.0666 and depreciated 1 percent to 82.94 yen.

The Bloomberg-JPMorgan Asia Dollar Index fell 0.5 percent this week, led by the Indian rupee’s biggest drop since November, as data showed Chinese and Philippine exports shrank. The rupee slid 1.5 percent this week to 49.41 per dollar, according to data compiled by Bloomberg.

Volatility

The implied volatility of three-month options for Group of Seven currencies fell as low as 9.79 percent, the least since August 2008, according to the JPMorgan G7 Volatility Index. It was as high as 10.13 percent yesterday. A decrease makes investments in currencies with higher benchmark lending rates more attractive as the risk in such trades is that market moves will erase profits.

Declining volatility in currency markets “tells you that you should be getting into the higher-yielding currencies but then the question, of course, is how long will this last for?” said Adrian Foster, head of financial-markets research for Asia at Rabobank Groep NV in Hong Kong. “Once people start observing it, more speculative money starts to pile in on the carry trade and sows the seed of its own destruction.”

Higher-yielding currencies have surged in 2012 as improving data in the U.S. has sapped demand for the perceived havens of the dollar and the yen.

The Mexican peso has appreciated 9.2 percent versus the greenback in 2012, the Brazilian real strengthened 8.2 percent and New Zealand’s dollar gained 6.6 percent. Mexico’s benchmark lending rate is 4.5 percent, Brazil’s is 10.5 percent and New Zealand’s is 2.5 percent compared with a low as zero in the U.S. and Japan.

The Swiss franc gained against the euro even after the Federal Statistics Office in Neuchatel said January consumer prices dropped 0.8 percent from a year ago, the most in more than two years.

The franc strengthened 0.2 percent to 1.2092 per euro and was 0.5 percent weaker 91.64 centimes.

--With assistance from Mika Otsuka in New York, Masaki Kondo, David Yong and Kristine Aquino in Singapore and Mayumi Otsuma in Tokyo. Editors: Mark McCord, Nicholas Reynolds

To contact the reporter 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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