The Dollar Index (DXY) climbed to a 20- month high before European Union leaders meet today amid concern Greece will exit the euro bloc, boosting demand for the U.S. currency as a haven.
The 17-nation euro was 0.1 percent from a four-month low as Greek elections loom on June 17 that may determine whether it stays in the currency union. The yen held a two-day drop after Japan posted a wider-than-estimated trade deficit and before the nation’s central bank concludes a meeting today.
“It’s hard to see what will come out of the EU meeting that would stimulate markets anymore,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp. (WBC), Australia’s second-largest lender. “We have election risks ahead of us for Greece and its potential exit from the euro zone, and that’s what markets are dwelling on and that will support the U.S. dollar as a safe haven for the next few weeks.”
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, reached 81.830, the highest since September 2010, before trading at 81.817 as of 9:37 a.m. in Tokyo, up 0.2 percent from the close in New York yesterday.
The euro retreated 0.3 percent to $1.2650 after touching $1.2642 on May 18, the least since Jan. 16. The currency slid 0.2 percent to 101.22 yen. The yen lost 0.1 percent 80.01 per dollar, set for a third-straight decline.
Greek Exit Costs
Former Greek Prime Minister Lucas Papademos told Dow Jones that preparations were being considered for the nation to depart from the currency bloc. The exit would cost as much as 1 trillion euros ($1.27 trillion), reflecting assumptions on market valuations, cross-border contagion and damage to the region’s economy, Papademos said in the interview.
Japan’s trade deficit increased to 520.3 billion yen ($6.5 billion) last month from a revised 84.5 billion yen in March, according to data from the Ministry of Finance today. Economists had estimated a shortfall of 470.8 billion yen.
Japanese Finance Minister Jun Azumi said yesterday that he expects the BOJ to take appropriate steps in a timely manner and that he regards highly the central bank’s actions since February. The BOJ decided that month and in April to increase the amount of government bonds it buys.
Demand for the yen was also damped after Fitch Ratings cut Japan’s foreign-currency rating yesterday by two levels to A+, with a negative outlook. The nation’s fiscal consolidation plan looks “leisurely,” Andrew Colquhoun, head of Asia-Pacific sovereigns at Fitch, said in a statement.
With “the Japanese yen facing headwinds, the U.S. dollar is becoming one of the last default safe-haven currencies,” Emma Lawson, a currency strategist in Sydney at National Australia Bank Ltd (NAB), wrote in a research note today.
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