Bloomberg News

Euro Weakens as Greece Forces Investors to Take Part in Swap; Dollar Gains

March 09, 2012

Packets of paper tissues, printed in the style of a 100 euro note, sit for sale in a souvenir store in Frankfurt, Germany. The 17-nation euro lost 0.3 percent to $1.3237 as of 7:02 a.m. in London from the close in New York yesterday. Photographer: Hannelore Foerster/Bloomberg

Packets of paper tissues, printed in the style of a 100 euro note, sit for sale in a souvenir store in Frankfurt, Germany. The 17-nation euro lost 0.3 percent to $1.3237 as of 7:02 a.m. in London from the close in New York yesterday. Photographer: Hannelore Foerster/Bloomberg

The euro weakened for the first time in three days against the dollar after Greece said it triggered an option compelling investors to take part in its debt restructuring, damping demand for the region’s assets.

The common currency fell versus 11 of its 16 major peers before the International Swaps and Derivatives Association meets to consider a “potential credit event” relating to Greece, following the results of the nation’s private-sector involvement plan. The Dollar Index rose as economists said a U.S. report today will show employers hired more than 200,000 workers for a third month. Norway’s krone slid after the trade minister said its recent strength was a “concern.”

“The euro has failed to gather any further support from the Greek news,” said Ian Stannard, head of European currency strategy at Morgan Stanley in London. “The market was fully expecting a successful PSI. The rebound we’ve seen in the euro may be running out of steam.”

The euro declined 0.4 percent to $1.3219 at 7:11 a.m. in New York after appreciating 1.2 percent over the previous two days. The single currency fell 0.1 percent to 108.17 yen. The dollar advanced 0.3 percent to 81.83 yen after reaching 81.89, the strongest level since May 26.

Higher-yielding currencies have led gains in foreign- exchange markets since global stocks bottomed three years ago today. The Australian dollar has surged 68 percent against the greenback, New Zealand’s currency jumped 67 percent and South Africa’s rand gained 41 percent. The euro has risen 4.8 percent. The MSCI All Country World Index (MXWD) of stocks has climbed about 90 percent since March 9, 2009.

Greek Swap

Greece said today that 95.7 percent of bondholders would participate in its debt swap after it used an option to force investors to participate. The government said holders tendered 152 billion euros of Greek-law bonds, or 85.8 percent, in response to the offer to swap their holdings.

The ISDA’s determinations committee will meet at 1 p.m. London time to determine whether a credit event has occurred, according to a statement posted on the group’s website. Euro- region finance ministers held a teleconference today to decide whether the swap was successful enough to warrant going ahead with a 130 billion-euro bailout package for Greece.

“The focus now is on what the ISDA will have to say,” said Daisuke Karakama, a market economist at Mizuho Corporate Bank Ltd. in Tokyo. “It appears that the activation of collective action clauses may be considered as an event” that triggers Greek credit-default swaps.

U.S. Payrolls

The dollar climbed versus all except three of its major counterparts on speculation today’s payrolls report will reduce the likelihood that the Federal Reserve will embark on a third round of quantitative easing to cap borrowing costs.

U.S. employers added 210,000 jobs in February, after hiring 243,000 the previous month, according to the median estimate of economists surveyed by Bloomberg before today’s report.

A good payrolls outcome “may be positive for the dollar, especially against the yen,” Morgan Stanley’s Stannard said. “The market is expecting a good number, so it is, to a certain extent, priced in.”

The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the U.S. currency against those of six major trading partners, gained 0.4 percent to 79.440.

Implied volatility of one-month options on the euro-dollar currency pair has fallen to 9.8 percent from 10.6 percent a week ago. The gauge declined to a 10-month low of 9.79 percent on Feb. 24. Lower volatility encourages purchases of higher- yielding assets as the main risk in such trades is that foreign- exchange moves will erase profits.

Krone Declines

The krone weakened the most among the 16 major currencies against the dollar after Trade Minister Trond Giske said its strength was hurting exports.

The government and central bank have stepped up verbal interventions to contain the krone’s ascent after the currency climbed to a nine-year high of 7.3884 per euro this month.

The krone tumbled 1 percent to 5.6432 per dollar, and sank 0.5 percent to 7.4581 versus the euro.

The dollar may extend gains versus Japan’s currency to as high as 83.80 yen, Commerzbank AG said, citing trading patterns.

A 240-minute chart shows the U.S. currency is staying above a key area of support, particularly the level of 80.76 yen, Karen Jones, head of fixed-income, commodity and currency technical analysis at the bank in London, wrote in a note to clients. “While this holds, a positive bias is maintained. Resistance is now the 82.23 May 2011 high and we continue to target 83.80 short-term,” she wrote.

The yen has declined 6.7 percent in the past three months, the worst performer among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar fell 1.1 percent, and euro slid 2.5 percent.

To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Keith Jenkins in London at kjenkins3@bloomberg.net

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


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