Bloomberg News

Euro Gains Most in Two Weeks on Greece Optimism; Dollar Weakens

February 20, 2012

Feb. 20 (Bloomberg) -- The euro strengthened the most in almost two weeks against the dollar on speculation European finance ministers will settle their remaining differences over a Greek bailout at a meeting today.

The 17-nation currency rose for a third day versus the yen as German Finance Minister Wolfgang Schaeuble said he was “confident” approval would be reached at the meeting on a new 130 billion-euro ($172 billion) Greek bailout. The dollar fell after China cut reserve requirements for banks, reducing demand for safer assets. The yen weakened to a six-month low against the greenback after Japan posted its largest monthly trade deficit on record.

“The prices suggest some degree of optimism that the ministers will be able to agree on something,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “If they reach a deal and Greece is able to avoid the outright default, the euro should be well supported in the near term.”

The euro appreciated 0.9 percent to $1.3259 at 4:49 p.m. London time after climbing as much as 1 percent, the biggest intraday gain since Feb. 7. The currency advanced 0.8 percent to 105.41 yen, after touching 105.75, the strongest level since Nov. 14. The yen was little changed at 79.50 per dollar,

U.S. financial markets are shut for a public holiday.

Europe Meeting

Euro-area finance ministers are meeting in Brussels to discuss the terms of new loans to Greece and a possible contribution by central banks. They also aim to start a bond exchange with private investors meant to stave off a Greek bankruptcy next month. Should they fail to agree on the bailout today, the issue may be delayed until the next European Union summit on March 1.

More assurances are needed for Greece to secure another aid package, according to Dutch Finance Minister Jan Kees de Jager. “Money should be in a special blocked account, an escrow account as it’s known in English,” he said in Brussels.

“The market is cautiously optimistic in terms of what they expect out of Europe this week,” said Thomas Averill, managing director in Sydney at Rochford Capital, a currency and interest- rate risk-management company. “There will be support for the euro today.”

The euro has gained 0.4 percent in the past month according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The yen dropped 5.7 percent, and the dollar declined 2.4 percent.

Futures Traders

The euro gained even after futures traders boosted bets the currency will decline against the dollar. The difference in the number of wagers by hedge funds and other large speculators on a drop in the euro compared with those on a gain was 148,641 on Feb. 14, compared with 140,593 a week earlier, according to the Commodity Futures Trading Commission.

The yen weakened against 13 of its 16 major counterparts after Japan’s Ministry of Finance said the trade deficit widened to 1.48 trillion yen in January. The median estimate of economists surveyed by Bloomberg was for a shortfall of 1.46 trillion yen.

Standard & Poor’s affirmed Japan’s sovereign-debt rating at AA- today, maintaining a negative outlook and warning a downgrade is likely if medium-term growth prospects weaken.

The dollar dropped against all but one of its most-active peers as the People’s Bank of China cut banks’ reserve requirements. The action aims to support lending and sustain economic growth as the housing market cools.

‘More Easing’

“The market is probably expecting more easing” from China, said Mike Jones, a foreign-exchange strategist at Bank of New Zealand in Wellington. “If we do get the Greek deal on top of that, it’s likely to provide an additional risk kicker.”

Implied volatility of three-month options of Group of Seven currencies dropped for a third day, declining 0.5 percent to 10.32 percent, according to the JPMorgan G7 Volatility Index. 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 profit.

The pound rose for a fourth day against the dollar after an industry report showed U.K. house prices increased in February, adding to signs the economy is recovering.

Average asking prices for homes in London increased 2.5 percent from January, Rightmove Plc said in a report today. Prices in England and Wales rose 4.1 percent on the month, the most since April 2002.

Sterling gained 0.2 percent to $1.5853, and advanced 0.1 percent to 126.01 yen.

--With assistance from Keith Jenkins in London, Fred Pals in Brussels, Candice Zachariahs in Sydney and Liau Y-Sing in Kuala Lumpur. Editors: Daniel Tilles, Nicholas Reynolds

To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

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


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