Bloomberg News

Euro Gains to Six-Week High as Greece Offers Debt-Buyback

December 03, 2012

Dollar Touches 6-Week Low Versus Euro on Fiscal Cliff Concerns

The dollar has fallen 2.2 percent this year, the second-biggest drop among the 10 developed-nation currencies. Photographer: Kiyoshi Ota/Bloomberg

The euro rose to a six-week high versus the dollar as a Greek offer to spend as much as 10 billion euros ($13 billion) to buy back government securities eased concern the regions’ debt crisis is worsening.

The 17-nation euro gained as Greek bonds led advances in debt from the euro area’s lower-rated nations, including Spain and Italy. The Dollar Index (DXY) sank to a one-month low amid a hardening of positions among U.S. lawmakers on how to avert the so-called fiscal cliff. Credit Suisse Group AG informed certain clients that it will start imposing negative interest rates on cash balances held in Swiss francs, a bank official said.

“The euro will survive,” Adolfo Laurenti, deputy chief economist at Mesirow Financial in Chicago, said in a telephone interview. “Europe still has a lot of problems, but more and more people are coming to the realization that these problems are going to be around for a long time, but probably are not going to lethal.”

The euro strengthened 0.6 percent to $1.3068 at 12:25 p.m. New York time, after touching $1.3076, the most since Oct. 23. The shared currency added 0.3 percent to 107.47 yen. The U.S. currency dropped 0.3 percent to 82.25 yen.

Brazil’s real advanced after policy makers intervened following a plunge in the currency last week to a three-year low on slower-than-forecast third-quarter economic growth. The currency appreciated 0.8 percent to 2.1194 per dollar, after strengthening the most since June 29.

Yen Shorts

The euro has fallen 1.6 percent this year among the 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The yen had the largest decline, dropping 9.5 percent. The dollar lost 2.5 percent.

The difference between wagers for a decline in the euro versus the dollar and those on an advance -- so-called net shorts -- was 66,693 in the week ended Nov. 27 from 91,400 in the previous period, figures from the Washington-based Commodity Futures Trading Commission show. Net shorts for the yen climbed to 79,466, the most since 2007, according to the data.

“The path of least resistance is north for the euro,” Thomas Molloy, chief dealer at FX Solutions LLC, an online currency-trading company in Saddle River, New Jersey, said in a telephone interview. “You’ve got a general risk-on feeling out there.”

Greece invited holders of bonds to tender their securities in a so-called modified Dutch auction, the Athens-based Public Debt Management Agency said in a statement today on its website. PDMA offered an average maximum purchase price for the bonds maturing from 2023 to 2042 of 34.1 percent. The offer runs to 5 p.m. London time on Dec. 7.

Greek Bonds

“The euro is performing well as something has been put together on the Greece front,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “The level of confidence on the debt front, which is key for the euro, looks sound for now. One could also argue the lack of agreement over the fiscal cliff is a sell for the dollar.”

Europe’s currency may strengthen more than 3 percent against the yen after ending last week above a key technical level, UBS AG said, citing trading patterns.

Switzerland’s second-biggest bank said in a notice distributed to bank clients via the Swift system today that it will communicate the currencies involved in its plan to charge negative interest rates on cash balances, plus the thresholds and rates on an individual basis to those customers during the next five business days.

“If you see a major move in euro-Swiss, you’ll just tend to see demand for euros across the board,” said Molloy of FX Solutions. “It will tend to support the euro against the dollar.”

Swiss Rates

Europe’s common currency gained as much as 0.4 percent against the Swiss franc, the biggest jump since September, and rose to 1.2086 euros.

Yields on Spanish bonds due in 10-years fell to 5.2 percent, the lowest since March, while similar-maturity Italian debt dropped to 4.4 percent, the lowest in a year.

The euro advanced versus most of 16 major peers as U.S. Treasury Secretary Timothy F. Geithner and House Speaker John Boehner blaming the other for a standoff that may lead to more than $600 billion in tax increases and spending cuts in January.

Geithner said in an interview aired yesterday on CNN’s “State of the Union” that Republicans in Congress will be responsible for hurting the economy if they refuse to raise tax rates on the highest-income earners as part of a deal. Boehner, a Republican, said on the “Fox News Sunday” program that the White House is wasting time.

Dollar Level

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against currencies of six U.S. trading partners, declined 0.4 percent to 79.821, after falling to the least since Oct. 31.

Australia’s currency fell to the least in a week as amid speculation the Reserve Bank will lower borrowing costs at a meeting tomorrow. The nation’s statistics bureau said retail sales were unchanged in October after climbing in the previous two months. The figure compares with economist predictions for a 0.4 percent advance.

Interest-rate swaps data compiled by Bloomberg show traders see a more than 90 percent chance RBA Governor Glenn Stevens will cut the cash rate target by 25 basis points, or 0.25 percentage point, to 3 percent tomorrow, concurring with 19 of 28 economists in a Bloomberg News survey.

To contact the reporters on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net; Neal Armstrong in London at narmstrong8@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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