May 3 -- The euro fell for the first time in four days against the dollar on concern a 110 billion-euro ($146 billion) bailout package for Greece will fail to win support from some of the region’s governments.
Europe’s common currency slumped versus most of its 16 major counterparts as German Chancellor Angela Merkel began making a public case for her citizens to aid Greece. The pound fell as polls signaled neither of the U.K.’s two biggest parties will gain a governing majority in this week’s election.
“The euro is just patently overvalued,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York, who predicts a decline to $1.30 this month. “My complaint is that the package requires some extremely harsh austerity measures that simply won’t be put into place.”
The euro dropped 0.8 percent to $1.3191 at 1:19 p.m. in New York from $1.3294 last week, after earlier touching $1.3361, the strongest level since April 27. The 16-nation currency traded at 124.94 yen from 124.78. The dollar was at 94.70 yen from 93.85 yen.
Mexico’s peso rose as the European Union and International Monetary Fund’s approval yesterday for the Greece aid package for Greece boosting demand for higher-yielding, emerging-market assets.
Loan Approval Timeline
EU leaders are scheduled to meet on May 7 to discuss the timeline of parliamentary approval for loans to Greece. Germany is due to debate the plan on the same day.
“The euro fell because the package hasn’t been approved yet and there’s dissension in the ranks,” said Jessica Hoversen, a Chicago-based analyst at the futures broker MF Global Holdings Ltd. “The real fear is that Greece won’t be able to make the budget cuts.”
Aid for Greece is of “enormous” importance, Merkel told reporters in Berlin today after convening a special meeting of her Cabinet that approved loans for Greece of as much as 22.4 billion euros ($30 billion) over three years.
“It doesn’t only mean that we help Greece, but that we stabilize the euro as a whole, which helps people in Germany,” Merkel said.
The chancellor canceled two campaign rallies today in North Rhine-Westphalia, where polls show her party struggling to retain power at a May 9 vote, to give back-to-back interviews on N24, ZDF and ARD television channels.
Required Cuts
Greece’s three-year financial lifeline requires the nation to cut its budget deficit below the EU limit of 3 percent of gross domestic product by the end of 2014, a year later than originally planned. The deficit was 13.6 percent last year, the region’s second-largest after Ireland. The austerity measures include a second set of wage cuts for public workers and a three-year freeze on pensions.
“There’s never been a country that’s undertaken to save so much and there’s never been a country that’s succeeded in saving so much,” said Lutz Karpowitz, a currency strategist at Commerzbank AG in Frankfurt. “It’s very, very negative.”
Unions in Greece representing more than 500,000 civil servants called a 48-hour strike starting May 4 to protest what they have called “savage” budget cuts. Local government workers called a strike for today. Teachers are also on strike from tomorrow and a general strike, the third this year, is planned for May 5.
‘Terrific Recession’
“For Greece, this means terrific austerity and terrific recession,” Marc Faber, publisher of the Gloom, Boom & Doom report, said in a Bloomberg Television interview in Hong Kong. “The euro will remain weak, and there’ll be more bailouts,”
Futures traders are more bearish than ever on the euro, suggesting further declines ahead for Europe’s shared currency. Hedge funds and other large speculators raised net wagers on a euro drop by 25 percent to 89,013 contracts in the week ended April 27, Commodity Futures Trading Commission data show.
The euro has depreciated 7.6 percent against the dollar this year, including last week’s 0.7 percent loss, on concern the sovereign debt crisis will slow Europe’s economy.
Mexico’s peso rose 0.5 percent to 12.2509 per U.S. dollar from 12.3109 on April 30. The peso has strengthened 6.7 percent in 2010, the best performer against the dollar of the 16 major currencies tracked by Bloomberg.
“Greece was creating certain pressure for the peso last week because there was still a lot of doubt,” said Rafael Camarena, an economist with Banco Santander SA in Mexico City. “The market today is taking into account that finally a plan to rescue Greece was cemented.”
Britain’s pound dropped for a second day, falling 0.2 percent to $1.5250, as surveys by YouGov Plc and ICM Ltd. today showed Prime Minister Gordon Brown’s Labour Party narrowing the Conservatives’ advantage in popular support and retaking the lead in the forecast number of seats in Parliament. The election will be held on May 6.
April 26 (Bloomberg) -- The yen fell against higher- yielding currencies as signs that a worldwide economic recovery is gaining momentum boosted demand for riskier assets.
Japan’s currency dropped against all of its most-active counterparts after a report showed U.K. house prices rose for a ninth straight month and before data forecast to show the U.S. housing market is stabilizing. South Korea’s won strengthened to a 19-month high as global funds pumped more money into the nation’s shares to profit from accelerating economic growth.
“Data across the globe underscore the economy is recovering, which then boosts risk sentiment,” said Koichi Kurose, chief strategist in Tokyo at Resona Bank Ltd., a unit of Japan’s fourth-largest banking group. “Buoyant risk sentiment will encourage investors to sell the yen and re- invest in higher-yielding assets.”
The yen fell to 126.22 per euro as of 11:04 a.m. in Tokyo from 125.73 in New York on April 23. The currency also dropped to 94.31 yen per dollar from 93.97 in New York. It earlier slid to 87.61 yen per Australian dollar, the lowest since September 2008, before trading at 87.57 from 87.19 last week. The euro was little changed at $1.3378.
The won rose for a fifth day against the yen, trading at 11.6968 against the Japanese currency from 11.7998 on April 23. It earlier touched 11.6933, the highest since October 2008.
The Nikkei 225 Stock Average rose 2.1 percent and the MSCI Asia Pacific Index of regional shares advanced 1.2 percent.
Pound Gains
The pound climbed to a 12-week high against the yen after London-based Hometrack Ltd. said the average cost of a home in England and Wales increased 0.2 percent from March to 158,400 pounds ($243,000). The S&P/Case-Shiller home-price index in the U.S. climbed 1.3 percent, the first increase since December 2006, according to a Bloomberg News survey of economists before the data is released tomorrow.
“The recovery of economies around the world, including the U.K., appears to be firm,” said Yuji Saito, director of the foreign-exchange department at Credit Agricole Corporate and Investment Bank in Tokyo. “The pound may be bought.”
The U.K. currency advanced to 145.61 yen from 144.49 yen in New York on April 23, after earlier touching 145.71 yen, the highest level since Jan. 29.
Fed’s Policy
The dollar traded near its strongest in almost three weeks versus the yen on speculation the Federal Reserve will move closer to withdrawing stimulus measures at its April 27-28 meeting amid signs the U.S. economic recovery is intact.
Fed policy makers this week will try to decide how and when to sell mortgage-backed securities and reduce its balance sheet, the Wall Street Journal said on April 23, without saying where it got the information.
“Our economists note there is some potential for a very modest reworking of the key policy guidance language,” Gareth Berry, a currency strategist in Singapore at UBS AG, wrote in a research note today. “We continue to look for further dollar strength as the Fed shows every intention of gradually continuing down the path to policy normalization.”
Futures contracts on the Chicago Board of Trade on April 23 showed a 72 percent chance the Fed will raise its benchmark rate at least a quarter-percentage point by its December meeting, up from 66 percent a day earlier.
The U.S. economy expanded 3.4 percent in the first quarter, a Bloomberg News survey of economists showed before the Commerce Department’s report on April 30.
Dollar Strength Grows as Carry Trade Profits Evaporate on Rates
Labels: Analysis and Forecasts, US DollarApril 26 (Bloomberg) -- Foreign-exchange profits from carry trades are disappearing as differences in central bank interest rates fail to increase fast enough to compensate for swings in currency rates.
Royal Bank of Scotland Plc’s index tracking the strategy of tapping cash where borrowing costs are low and investing where rates are higher, rose 0.57 percent in the first quarter, the smallest amount in a year, and down from 9.8 percent in all of 2009. Morgan Stanley strategists said in an April 15 research report that the only “functionally attractive” currency to target in carry trades is Australia’s dollar.
Falling demand for carry trades may help the dollar -- a favorite for funding the trades because of record low U.S. rates -- extend a rally that drove it 12 percent higher versus the euro the past six months. Gains of almost 30 percent in Brazil’s real, New Zealand’s dollar and South Africa’s rand the past 12 months suggest they already reflect the prospect of higher rates as central bankers begin to shift monetary policy.
“There is no easy money left in the carry trade,” said Henrik Pedersen, the London-based chief investment officer at Pareto Investment Management Ltd., which oversees $45 billion in currency assets.
“Most of the high-yielding currencies are overvalued and the low-yielders are undervalued,” he said. “The gains you can make on the interest-rate differentials are not going to make you 20 percent a year, it’s probably only going to make you about 2 or 3 percent.”
Central Bank Rates
The dollar touched a two-week high versus the yen on April 23 as orders for U.S. durable goods excluding transportation items surged 2.8 percent in March and sales of new homes jumped 26.9 percent, the most in five decades. The greenback strengthened 0.88 percent to $1.3384 per euro, and 1.95 percent to 93.97 yen.
Measured by Bloomberg Correlation-Weighted Currency indexes, the dollar has gained 1.73 percent this year.
A stronger currency is important to the U.S. because it entices foreign investors to Treasury debt that finances the nation’s record budget deficit. The downside is that it may restrain profit growth at companies with international sales by making U.S. exports more expensive.
Euro Predictions
United Technologies Corp., the Hartford-based maker of Pratt & Whitney jet engines and Black Hawk helicopters, and Providence, Rhode Island-based Textron Inc., which produces Cessna planes, predicted the euro would trade at $1.41 or higher this year. It fell to $1.3384 last week, from a high of $1.4579 in January.
“The global convergence in yields has basically sidelined the demand for carry,” said Mike Moran, a New York-based senior currency strategist at Standard Chartered Plc. “What has happened over the last 18 months has really leveled the playing field in carry trades. It has driven a convergence in the two most important factors in the carry trade, yields and volatility.”
Carry trades, which flourish most when interest-rate spreads are wide and swings in exchange rates muted, lost 31.5 percent in 2008 as the global financial crisis led to a compression of central bank borrowing costs, before rebounding last year, RBS index data shows.
Coordinated Effort
The Federal Reserve, European Central Bank and four other central banks lowered rates in October 2008 in an unprecedented coordinated effort to ease the effects of the worst financial crisis since the Great Depression.
Central bankers are now preparing rate increases as the global economy recovers. Reserve Bank of Australia lifted its overnight cash rate to 4.25 percent this month from 3 percent in October. New Zealand’s benchmark rate is 2.5 percent, compared with 0.1 percent in Japan and a range of zero to 0.25 percent in the U.S.
In January 2007, rates were 0.25 percent in Japan, 5.25 percent in the U.S., 6.25 percent in Australia and 7.25 percent in New Zealand.
Investors who took advantage of global rate differentials averaged annual returns of 16 percent from 2000 to 2005, according to the RBS index. The best gains of the decade were in 2002, when the strategy returned 29.3 percent.
At 10.1 percent, three-month implied option volatility for emerging economies is about one percentage point less than for currencies of major industrialized nations, a JPMorgan Chase & Co. index show. In October 2008, emerging volatility was 13 percentage points more.
‘Not Very Attractive’
Higher volatility dims the allure of carry trades by increasing the probability that swings in exchange rates erode gains. The JPMorgan option index measuring swings in industrialized nation currencies averaged 7.7 percent in the two years before the subprime mortgage market collapsed in August 2007.
“The carry trade is not very attractive now, broadly speaking,” said Ronald Leven, a senior currency strategist at Morgan Stanley in New York. “There also is some shifting away from the dollar as a funding currency.”
Leven forecasts the dollar will appreciate to 109 yen and $1.24 per euro by December. Federal fund futures traded on CME Group Inc.’s Chicago Mercantile Exchange show traders place a 56 percent chance the U.S. central bank will lift its target for overnight loans between banks by November.
The dollar has benefitted at the expense of the euro, which has been plagued by concern about the ability of Greece and other European countries such as Portugal and Spain to meet their debt obligations.
Greece asked the European Union and International Monetary Fund on April 23 to activate a lifeline of as much as 45 billion euros ($60 billion) in an unprecedented test of the euro’s stability and European political cohesion.
‘Financing Stress’
“The alleviating of financing stress in Europe should reduce the risk aversion bid for the dollar that emerged last December and lead markets to return to dollar funding of carry and risk trades,” strategists at Zurich-based Credit Suisse Group AG wrote in an April 13 report.
The firm forecast that the dollar will depreciate to $1.43 per euro and to 92 yen in three months.
The Aussie gained 28 percent against the U.S. dollar and 24 percent versus the Japanese yen in the past 12 months as the Reserve Bank began raising rates in October.
The Bank of Canada signaled last week it may be the first Group of Seven nation to boost borrowing costs. India raised rates for the second time in a month last week, and Sweden’s Riksbank reiterated a forecast to boost its seven-day repurchase rate by the end of the third quarter.
‘Incentive Structure’
“Regardless of when exactly the Fed raises rates, there is already a waterfall going on in movements of U.S. rates above those in other nations,” Marc Chandler, the head of currency strategy at Brown Brothers Harriman & Co. in New York, said. Investors “have been paid for being short the U.S. dollar, but that incentive structure is changing,” he said.
The cost of borrowing in yen for three months between banks fell below the dollar rate on March 4 for the first time since August, lessening the appeal of the greenback as a funding currency.
The London interbank offered rate, or Libor, for three- month yen loans was 8.375 basis points less than the dollar rate last week, the most since July. The dollar rate moved below its yen counterpart last year for the first time.
“Ten years ago it was basically the carry trade as a free lunch,” said Maxime Tessier, chief of foreign exchange at Montreal-based Caisse de Depot et Placement du Quebec, Canada’s biggest pension fund manager, with $131.6 billion in assets. “If we are in an environment where risk appetite remains subdued, and questions remain about what will happen with economies and central banks going forward, and if the fiscal crisis we are now seeing will broaden, then this is not the ideal environment for carry.”
April 24 (Bloomberg) -- The dollar advanced for the first time in three weeks against the yen on evidence of a global economic recovery including a surge in the U.S. housing market before next week’s Federal Reserve policy meeting.
The euro touched its weakest level in almost a year against the dollar before Greece asked the European Union and the International Monetary Fund yesterday to activate a bailout of as much as 45 billion euros ($60 billion). The yen fell against all of its major counterparts this week as central banks signaled they will begin increasing borrowing costs to contain inflation, encouraging demand for higher-yielding assets.
“There’s lots of good data in the U.S. and globally, and that’s keeping the yen on the back foot,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “The aid package for Greece is a temporary stop-gap. The combination of strong U.S. numbers, a more upbeat Fed and sovereign concerns in Europe means it’s just a matter of weeks before the euro breaks $1.30.”
The dollar increased 2 percent to 93.97 yen, from 92.17 on April 16. The euro declined 0.9 percent to $1.3384, from $1.3503 last week. It touched $1.3202 yesterday, the lowest level since April 30, 2009. The euro appreciated 1 percent to 125.73 yen, from 124.44 yen.
New Zealand’s dollar gained 3.2 percent to 67.40 yen and Mexico’s peso increased 2.8 percent to 7.72 yen this week on speculation investors will increase carry trades, in which they buy higher-yielding assets with amounts borrowed in nations with low interest rates. Japan’s benchmark of 0.1 percent has made the yen popular for funding such transactions.
Yuan Forwards
Yuan forwards touched a three-month high on April 22, before yesterday’s meeting of Group of 20 finance chiefs in Washington. The officials called in a statement for “credible” plans to withdraw economic stimulus as the recovery gains momentum and Greece’s fiscal turmoil highlights the risks posed by mounting government debt.
Treasury Secretary Timothy F. Geithner earlier this month called the talks an “avenue for advancing U.S. interests” on the Chinese currency.
Twelve-month non-deliverable yuan forwards ended the week at 6.6115 per dollar, compared with 6.6185 on April 16. The contracts reached 6.5930 on April 22, reflecting bets that the currency will strengthen about 3 percent.
The dollar rose to the strongest level in two weeks versus the yen yesterday as government reports showed U.S. new-home sales rose in March by the most in almost five decades and orders for durable goods surged.
U.S. Housing Market
New-home sales rose 27 percent in March, the most since April 1963, and orders for U.S. durable goods excluding transportation items gained 2.8 percent, the Commerce Department reported. The median forecast of 75 economists in a Bloomberg News survey was for a 0.7 percent advance in bookings for goods meant to last at least three years.
The housing number was “incredible,” and the durable- goods report was “strong,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp., the world’s largest custodial bank, with more than $20 trillion in assets under administration. “These reports will send the FOMC back to the drawing board to fine-tune the interest rate trajectory.”
The dollar decreased 0.2 percent against the yen on March 16, when the Fed retained its pledge to keep the target lending rate at virtually zero for an “extended period.”
All of the 98 economists in a Bloomberg News survey predict the Federal Open Market Committee will hold its fed funds target at a range of zero to 0.25 percent on April 28.
Euro Versus Krone
The euro fell for a fourth week against the Norwegian krone, dropping 1 percent to 7.8833, as Greece called for financial assistance in an unprecedented test of the 16-nation currency’s stability and European political cohesion.
“The fragmented nature of the European bond market will call into question the euro’s credibility as a reserve currency,” said Adam Cole, head of global currency strategy at Royal Bank of Canada in London.
Canada’s currency touched its strongest level versus the greenback in almost two years this week after the Bank of Canada signaled it may be the first Group of Seven nation to increase borrowing costs as economic growth accelerates and stokes inflation.
The central bank dropped a phrase regarding its “conditional commitment” to keeping the record low 0.25 percent target lending rate unchanged until July unless the inflation outlook shifted.
The Canadian dollar gained 1.4 percent to 99.91 Canadian cents per U.S. dollar, from C$1.0128 last week. The currency reached parity with the greenback on April 6 for the first time since July 2008.
India’s rupee climbed 1.7 percent to 2.12 yen after the central bank raised interest rates for the second time in a month and ordered lenders to set aside more cash as reserves in an attempt to slow the highest inflation rate among the G-20.
The euro slid versus all 16 major counterparts as policy makers from G-20 nations meet in Washington today. Europe’s currency headed for a third weekly drop against the yen after the European Union raised its estimate for Greece’s deficit and Moody’s Investors Service cut the nation’s debt rating. The dollar traded close to a one-week high versus the yen before U.S. reports forecast to show improving orders for long-lasting goods and new home sales.
“Chances are G-20 officials will discuss Greece because it could lead to a global financial issue,” said Takashi Kudo, general manager of market information at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp., in Tokyo. “Markets seem to be mounting pressure on Greece to get a bailout, with the euro weakening. Risk aversion is causing the dollar and yen to be bought.”
The euro fell to $1.3215 at 12:28 p.m. in Tokyo from $1.3295 in New York yesterday, and touched $1.3202, the lowest level since April 30, 2009. The 16-nation currency declined to 123.55 yen from 124.28 yen. The dollar traded at 93.50 yen from 93.49 yen, after reaching 93.63 yen, the highest since April 14.
The yen typically strengthens in times of financial turmoil as Japan’s trade surplus frees the nation from dependence on overseas capital. The dollar benefits as the world’s main reserve currency.
G-20 Meeting
The EU lifted its estimate for Greece’s deficit to 13.6 percent of gross domestic product, while Ireland overtook the southern European nation as the EU member with the largest deficit, at 14.3 percent.
“There are a number of countries who could easily go down the same path, and the ability for Europe to bail out all of those economies is, I would imagine, quite limited,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “A resolution is needed quite quickly. Otherwise, the euro is going to continue to weaken.”
Moody’s lowered Greece’s credit rating to A3 from A2, four grades above junk, while credit-default swaps tied to the debt climbed to a record 644 basis points. Greece is prepared to ask euro-region governments for a bridge loan, a Greek government official said, as debt worth $11.3 billion comes due next month and borrowing costs surge to the highest since 1998.
G-20 finance chiefs including U.S. Treasury Secretary Timothy F. Geithner and European Central Bank President Jean- Claude Trichet may also intensify pressure on China to revalue the yuan at today’s talks, which Geithner called an “avenue for advancing U.S. interests” on the Chinese currency.
Central Bankers
Central bankers in India and Brazil this week backed a stronger yuan as did the International Monetary Fund and EU governments. Speculation the G-20 will urge China to revalue its currency boosted yuan non-deliverable forwards to a three-month high yesterday.
“Political pressure on China to resume yuan appreciation will likely remain in place at the G-20 meeting,” said Sebastien Barbe, head of emerging market research at Credit Agricole CIB in Hong Kong. “This should keep the dollar-yuan NDF discount wide.”
Twelve-month non-deliverable forwards were little changed at 6.6023 yuan per dollar after reaching 6.5930 yesterday, the highest level since Jan. 11, according to data compiled by Bloomberg. The contracts reflect bets the currency will strengthen 3.4 percent from the spot rate of 6.8263.
The dollar rose to a seven-week high versus the Swiss franc on speculation signs of U.S. growth will increase.
‘Renewed Optimism’
Durable goods orders rose for a fourth month and new home sales ended four months of declines, Bloomberg News surveys of economists showed before the Commerce Departments reports today.
“Renewed optimism about the strength of the U.S. economy is adding to the dollar’s appeal,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “Tonight’s data is all about quality, not quantity, with U.S. durable goods orders due for release.”
The U.S. currency climbed to 1.0837 Swiss francs from 1.0781, after advancing to 1.0850 francs, the strongest since March 2.
The pound weakened against the dollar and yen after a second televised debate renewed concern next month’s election won’t produce a government strong enough to tackle the U.K.’s deficit.
Pound Under Pressure
Conservative David Cameron failed to derail Nick Clegg in the U.K. campaign’s second debate, four instant polls showed, pointing to a hung parliament with Prime Minister Gordon Brown’s Labour Party as the largest bloc.
Sterling weakened 0.3 percent to $1.5335 and 0.3 percent to 143.38 yen.
The pound may rally to a two-month high against the dollar after the U.K. currency stayed above its 20-day moving average, Ueda Harlow Ltd. said, citing trading patterns.
“Technical charts are signaling an acceleration in rising momentum for the British currency,” said Toshiya Yamauchi, a senior foreign-exchange analyst at the online currency-trading company. “The currency may test the $1.56 level, which represents the top of the cloud on a daily ichimoku chart.”
April 22 (Bloomberg) -- The yen rose against the euro for a second day on prospects U.S. President Barack Obama will call for new financial regulations, boosting demand for Japan’s currency as a refuge from turmoil in the global banking sector.
The yen advanced against all 16 major counterparts as Asian stocks dropped. Obama’s spokesman yesterday said the president will call for new regulations in a speech today at New York’s Cooper Union. The 16-nation euro traded near a two-week low against the dollar on concern discussions of a 45 billion-euro ($60.3 billion) aid package for Greece will fail to stem the nation’s debt crisis.
“The markets are wary over what Obama may say about new financial-industry regulations,” said Yuji Saito, director of the foreign-exchange department at Credit Agricole Corporate and Investment Bank in Tokyo. “The mood is leaning toward risk aversion. The bias is for the yen to be bought.”
The yen rose to 124.38 per euro as of 9:53 a.m. in Tokyo from 124.77 in New York yesterday. The yen gained to 92.88 per dollar from 93.19. The euro was at $1.3388 from $1.3390 yesterday, when it touched $1.3359, the lowest since April 9.
The Nikkei 225 Stock Average fell 1.7 percent today and the MSCI Asia Pacific Index of regional shares declined 0.7 percent.
“Financial reform is something that is born out of an economic collapse that started on Wall Street and spread to Main Street America,” White House press secretary Robert Gibbs said in previewing the president’s address.
Obama’s Speech
Obama is giving the address as he and Democratic leaders push to get legislation on rules for financial markets through Congress by next month. The House passed its version last December. The Senate is poised to take up legislation sponsored by Connecticut Democrat Christopher Dodd, the chairman of the Banking Committee.
The Securities and Exchange Commission last week filed a lawsuit against Goldman Sachs Group Inc. for fraud linked to its derivatives trading.
“The Goldman issue will take time to be solved, keeping stocks in a downtrend,” said Minoru Shioiri, chief manager of foreign-exchange trading in Tokyo at Mitsubishi UFJ Securities Co., a unit of Japan’s largest publicly traded bank by market value. “There’s a downside risk for cross currencies against the yen.”
The yen tends to strengthen during economic and financial turmoil because Japan’s trade surplus makes it less reliant on foreign capital.
Greece’s Debt
Demand for the euro waned after talks started yesterday on an assistance package including 30 billion euros from the European Union and as much as 15 billion euros from the International Monetary Fund. Greece Finance Minister George Papaconstantinou said the nation may request aid before talks on the conditions for the loans conclude in two weeks.
“I don’t see positives coming out of the Greece situation,” said Toshiya Yamauchi, manager of foreign-exchange margin trading at Ueda Harlow Ltd. in Tokyo. “The issue is deep, and negotiations among nations are also complicating the matter. The euro is poised to continue to fall gradually.”
Greece’s deficit of 12.9 percent of gross domestic product is more than four times the EU limit. Budget shortfalls across the euro region have surged as governments bailed out banks and spent billions on economic stimulus.
The IMF yesterday cautioned that if nations fail to contain soaring public debt that may have “severe” consequences for the world economy.
The yield premium investors demand to hold Greek 10-year bonds instead of benchmark German bunds climbed to 5.01 percentage points, the highest level since at least March 1998.
Yen Rises Versus Euro as Greek Debt Concern Aids Safety Demand
Labels: Analysis and Forecasts, Euro, YenApril 21 -- The yen rose against the euro for the first time in three days as concerns about debt-stricken Greece boosted demand for Japan’s currency as a refuge.
The euro weakened against 14 of its 16 major counterparts as Greece starts talks today on activating a 45 billion-euro ($60 billion) rescue package. The yen advanced against higher- yielding currencies after Federal Reserve Chairman Ben S. Bernanke yesterday said proposals to give regulators authority to dismantle large financial firms would be “constructive.” “Greece’s ability to resolve its debt problem is an ongoing worry,” said Toshihiko Sakai, head of trading for currencies and financial products at Mitsubishi UFJ Trust & Banking Corp. in Tokyo. “The trend is for the euro to be sold. The yen may also be bought.”
The yen rose to 124.90 per euro as of 9:23 a.m. in Tokyo from 125.24 in New York yesterday. The euro dropped to $1.3413 from $1.3435 after touching $1.3409, the lowest since April 9. Japan’s currency traded at 93.11 per dollar from 93.22. Yesterday it touched 93.39 per dollar, the weakest since April 15.
The euro slid as Greek officials prepare to hammer out deficit-cutting measures they must accept to tap the funds, in talks with the International Monetary Fund, the European Central Bank and the other nations using the euro. Greece’s government needs to raise about 10 billion euros before the end of May and its soaring financing costs are lending urgency to the talks.
Benchmark Currency Rates Currency keyUSD EUR JPY GBP CHF CAD AUD HKD HKD 7.7628 10.4839 0.0836 11.966 7.311 7.678 7.2275 AUD 1.0741 1.4505 0.0116 1.6556 1.0116 1.0623 0.1384 CAD 1.011 1.3654 0.0109 1.5585 0.9522 0.9413 0.1302 CHF 1.0618 1.434 0.0114 1.6367 1.0502 0.9886 0.1368 GBP 0.6487 0.8761 0.007 0.611 0.6416 0.604 0.0836 JPY 92.835 125.3755 143.1005 87.4317 91.8204 86.4331 11.9589 EUR 0.7405 0.008 1.1414 0.6974 0.7324 0.6894 0.0954 USD 1.3505 0.0108 1.5414 0.9418 0.9891 0.931 0.1288 
USD: U.S. Dollar CAD: Canadian Dollar GBP: British Pound EUR: Euro CHF: Swiss Franc AUD: Australian Dollar HKD: Hong Kong Dollar JPY: Japanese Yen
Comment: Disappointing as Cable drops last week’s levels. It should now try and base against the lower edge of the Ichimoku ‘cloud’ and the 26-day moving average. Futures volume is almost half March’s peak.
Strategy: Possibly attempt small longs at 1.5235; stop below 1.5130. First target 1.5350/1.5385, then 1.5525/1.5575.
Comment: Still struggling under a large Ichimoku ‘cloud’, dipping below horizontal 9 and 26-day moving averages. Expect another attempt at basing against the 1.3400 area.
Strategy: Possibly attempt small longs at 1.3465; stop well below 1.3400. First target 1.3600, then 1.3800/1.3840.
April 19 -- The dollar may advance against Japan’s currency should it remain above a key support level at 90.80 yen, Commerzbank AG said, citing technical indicators.
The U.S. currency slid through “double Fibonacci support” at 92.40 and 92.20 yen, according to Karen Jones, head of fixed- income, commodity and currency technical analysis at Commerzbank in London. The dollar may advance to 95.10 yen, the 61.8 percent Fibonacci retracement from its April high, before reaching 97.80 yen, its August 2009 peak, she said.
“The dollar is coming back to an area where it should hold and recover,” Jones said in a telephone interview today. “The 200-day moving average at 91.37 forms support, but more importantly, it appears to be returning to the point of break- out from its previous three-year downchannel at 90.80.”
The dollar weakened 0.2 percent to 91.98 yen as of noon in London, after slipping earlier to 91.60 yen, the lowest level since March 24.
In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, currency or index.
Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low. A break above resistance or below so-called support indicates a currency may move to the next level.
A resistance level is an area on a chart where technical analysts anticipate orders to sell a currency and a support level is an area there they anticipate orders to buy a currency.
April 19 -- The yen rose for a third day against the euro as concern that probes into Goldman Sachs Group Inc. will widen and Greece’s aid package may falter boosted demand for Japan’s currency as a refuge.
The yen strengthened versus all 16 of its main counterparts after U.K. Prime Minister Gordon Brown yesterday called for an investigation of Goldman Sachs following the U.S. Securities and Exchange Commission’s allegations of fraud. The euro fell to a one-week low against the dollar as International Monetary Fund and European Union officials prepared to lay down conditions on a bailout package for Greece. The pound slid the most in more than three weeks as polls indicated the U.K. election won’t produce a clear winner.
“It’s obviously a correction for the yen that’s been triggered by Goldman Sachs being accused of fraud,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “It has prompted a sell-off in risk assets across the board and the yen strengthens on the back of that.”
The yen appreciated to 123.42 per euro as of 6:26 a.m. in New York, from 124.44 last week, after reaching 123.16, the strongest since March 26. Japan’s currency advanced to 91.92 per dollar, from 92.17. The euro fell to $1.3435, from $1.3503, after reaching $1.3421, the weakest since April 9. The Dollar Index climbed for the third day, rising 0.5 percent to 81.264.
Equities fell after the SEC said last week that Goldman Sachs in early 2007 created and sold a collateralized debt obligation linked to subprime mortgages without disclosing that hedge fund Paulson & Co. helped pick the underlying securities and bet against the vehicle. The firm denies any wrongdoing.
‘Moral Bankruptcy’
Brown said he was “shocked” at the “moral bankruptcy” indicated in the suit. The German government “will ask the SEC for information,” said Ulrich Wilhelm, a spokesman for Chancellor Angela Merkel. “Then we will look at the records and consider possible legal steps.”
The euro fell for a third day against the dollar as concern Greece will activate the EU-led 45 billion-euro ($60 billion) emergency-loan package damped demand for the European currency.
Talks on Greece involving the European Commission, the IMF and the European Central Bank have been delayed until April 21 from today because of a volcanic ash cloud disrupting air travel. Initial discussions will be held by phone today, a commission spokesman said.
Greek ‘Rage’
Prime Minister George Papandreou’s decision to call for the talks prompted a reaction of “rage” among 48 percent of Greeks surveyed in a poll in the Eleftheros Typos newspaper yesterday. Nine of 10 people surveyed said they expected the IMF to insist on more belt-tightening. Labor unions have threatened new strikes over the prospect of more budget cuts.
The extra yield offered by Greek 10-year bonds over similar-maturity German bunds, Europe’s benchmark debt securities, widened to 32 basis points to 462 basis points, the most since October 1998. Greece needs to raise 11.6 billion euros by the end of May. A wider gap between the yields indicates perceptions of higher risk for Greece.
The euro slid 5.7 percent against the dollar in the first quarter amid concern Greece’s debt crisis could threaten the economic recovery across the region.
“The spread is as good as any indicator of the level of concern,” said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp. in London. “We are moving slowly toward the point where the button is hit to call in the aid. All those things continue to weigh on the euro.”
Short Positions Rise
The yen move may have been exaggerated as investors trimmed bets that the yen will decline against the dollar, after futures traders increased wagers on a drop last week to the most since July 2007, Hardman said.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on a gain -- so-called net shorts -- was 55,746 on April 13, compared with net shorts of 42,305 a week earlier, figures from the Washington-based Commodity Futures Trading Commission showed on April 16.
“Speculative yen net-short positions have been built up in recent weeks,” Hardman said. “That creates scope for a greater short squeeze.”
The pound slid after a survey showed an increase in support for the Liberal Democrats, boosting concern the U.K. will elect a government too weak to tackle the country’s record budget deficit. The Liberal Democrats overtook the ruling Labour Party and Conservatives, according to a YouGov poll for today’s Sun newspaper.
Hung Parliament
The chances of the May 6 vote producing a so-called hung parliament are 78.9 percent, according to Royal Bank of Scotland Group Plc estimates based on opinion polls data.
The pound lost 1 percent to $1.5204, after earlier slipping 1.1 percent, the most since March 24. It depreciated by 0.6 percent to 88.34 pence per euro.
The Australian dollar’s push to parity with the U.S. dollar is in jeopardy as central bankers signal they may slow the pace of interest-rate increases and China moves closer to revaluing the yuan.
After rallying 28 percent the past 12 months, more than any other currency tracked by Bloomberg, Morgan Stanley predicts the Aussie may tumble 16 percent by year-end because higher borrowing costs will curb growth. Barclays Capital, which in December forecast a peak of $1 in 2010, now expects the Australian dollar to be the biggest loser from what it calls a “significant” yuan revaluation.
The currency is “fully priced,” said Scott Ainsbury, a New York-based money manager who helps invest about $9 billion at FX Concepts Inc., the world’s biggest foreign-exchange hedge fund. “It’s probably time to lighten up,” he said. The Aussie may weaken about 3 percent before rising by year-end.
Australia’s dollar declined 0.7 percent to 91.79 U.S. cents, and slipped 0.9 percent to 84.43 yen.
April 17 -- The yen advanced against all of its most-traded counterparts as speculation China may take further steps to slow its economy and Greece may trigger a $61 billion rescue package spurred demand for relative safety.
The dollar dropped for two straight weeks against the yen for the first time since January after Goldman Sachs Group Inc. was charged with fraud, making U.S. stocks less attractive. Canada’s dollar fell against the greenback for the first time in three weeks after touching parity for a second week before the Bank of Canada’s policy meeting on April 20.
“The Greece story isn’t going away soon, and we expect further tightening from China,” said Vassili Serebriakov, a strategist at Wells Fargo & Co. in New York. “That’s triggered some caution in the market, and that’s why you’re seeing the yen doing better.”
The yen gained 1.1 percent to 124.44 per euro yesterday, from 125.79 on April 9. Japan’s currency appreciated 1.1 percent to 92.17 against the dollar, from 93.18. It advanced to 91.91 yesterday, the strongest level since March 25. The euro was little changed at $1.3503, compared with $1.35.
The dollar dropped to the lowest level against the yen in almost a month as Goldman Sachs was sued by the Securities and Exchange Commission for fraud related to collateralized debt obligations that contributed to the worst financial crisis since the Great Depression. The charges “are completely unfounded,” Goldman Sachs said in a statement.
‘Riveted’ on Goldman
“The Goldman news has people riveted,” said Firas Askari, head currency trader in Toronto at Bank of Montreal, Canada’s fourth-largest lender. “Risk off.”
The Standard & Poor’s 500 Index erased its weekly gain, ending the week down 0.2 percent. Crude oil dropped 2.3 percent this week, the most since the five days ended Jan. 22.
New Zealand’s dollar slid 2.1 percent to 65.31 yen this week and Australia’s currency lost 2 percent to 85.18 yen on speculation investors will reduce carry trades, in which they buy higher-yielding assets with amounts borrowed in nations with low interest rates. Japan’s benchmark of 0.1 percent has made the yen popular for funding such transactions.
Twelve-month non-deliverable yuan forwards finished the week at 6.6185 per dollar, indicating traders bet China’s currency may gain 3 percent in the next 12 months. China has pegged the yuan at about 6.83 since July 2008, after allowing it to rise 21 percent in the previous three years.
China’s cabinet raised minimum mortgage rates and down- payment ratios for some home purchases, saying “more forceful” steps are needed to cool speculation after property prices rose at a record pace in March.
‘Prudent Policy’
“It’s what China needs to do and should do,” said Alan Ruskin, head of currency strategy at Royal Bank of Scotland Group Plc in Stamford, Connecticut. “This is prudent policy to achieve sustained growth over the cycle.”
The nation’s economy grew 11.9 percent from a year earlier in the biggest gain since the second quarter of 2007, the statistics bureau said this week.
Singapore’s dollar rallied the most against the greenback in six months, appreciating 1 percent to S$1.3756 as its central bank unexpectedly revalued its currency after the government raised forecasts for economic growth and inflation.
The Monetary Authority said it will seek a “modest and gradual appreciation” in the local dollar and shift to a stronger range for currency fluctuations, the first such combined move in its 39-year history.
Greece Talks
The euro fell for a second straight week versus the yen before talks on Greece involving the European Union, the International Monetary Fund and the European Central Bank that are scheduled to begin on April 19.
European finance ministers offered as much as 30 billion euros ($41 billion) in three-year loans in 2010 at about 5 percent, compared with the three-year Greek bond yield of 7.21 percent. Another 15 billion euros would come from the International Monetary Fund.
“I see Greece doing the sensible thing and turning its back on the bond market,” said Andrew Wilkinson, senior market analyst at Interactive Brokers Group LLC in Greenwich, Connecticut. “We say take it at 5 percent.”
Canada’s dollar slid 1 percent to C$1.0128 versus the greenback this week after trading at 99.54 Canadian cents versus the dollar on April 14, the strongest level since June 2008.
The Bank of Canada will meet April 20 to decide on interest rates. Governor Mark Carney signaled last month he’s open to raising the target lending rate as soon as June 1 as inflation and growth outpace forecasts.
South Africa’s rand was the biggest loser versus the dollar, declining 1.8 percent to 7.390 on speculation the nation’s central bank will lower its target lending rate, now at 6.5 percent. The nation’s retail sales unexpectedly contracted for a 13th month in February, a report showed this week.
April 16 (Bloomberg) -- The yen advanced against all of its most-traded counterparts as stocks dropped after Goldman Sachs Group Inc. was charged by U.S. regulators with fraud, deterring demand for higher-yielding assets.
The euro recorded its second week of losses against the yen on speculation Greece would be forced to activate a 45 billion euro ($61 billion) rescue package as it struggles to rein in the euro region’s widest budget shortfall. Australia’s dollar fell against its U.S. counterpart as China raised minimum mortgage rates for some home purchases.
“The Goldman story is pulling the stock market down, and you’re getting a flight to quality into the yen,” said Carol Hurley, a senior market strategist in Chicago at Lind-Waldock & Co., a unit of futures broker MF Global Holdings Ltd. “It’s most definitely weighing on risk sentiment.”
The yen appreciated as much as 1.9 percent to 123.87 per euro in the biggest intraday advance since Feb. 25, before trading at 124.40 at 4:14 p.m. in New York, compared with 126.27 yesterday. The dollar climbed 0.5 percent to $1.3505 per euro, from $1.3573. Japan’s currency gained 1 percent to 92.13 per dollar, from 93.03.
South Africa’s rand slid 2.1 percent to 12.47 yen and Mexico’s peso lost 1.8 percent to 7.51 yen on speculation investors will reduce carry trades, in which they buy higher- yielding assets with amounts borrowed in nations with low interest rates. Japan’s benchmark of 0.1 percent has made the yen popular for funding such transactions.
Goldman Sachs
The Standard & Poor’s 500 Index fell 1.6 percent after Goldman Sachs was accused of fraud related to collateralized debt obligations that contributed to the worst financial crisis since the Great Depression.
The company misstated and omitted key facts about a financial product tied to subprime mortgages as the U.S. housing market was starting to falter, the Securities and Exchange Commission said in a statement today.
“The SEC’s charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation,” Goldman Sachs said in a statement.
Yuan forwards erased losses as President Hu Jintao reiterated that China is moving ahead with a gradual “managed” floating exchange-rate plan.
“We have been proceeding with a managed floating exchange- rate mechanism under the principle of initiative, control and gradualism as always,” Hu said in a speech published on the Web site of the Ministry of Foreign Affairs. “Despite the huge difficulty we faced after the international financial crisis, we have kept the yuan exchange rate relatively steady, which promoted the stability of the international financial system.”
Hu at Summit
Hu made the speech yesterday when he was attending a summit in Brazil involving the leaders of Brazil, Russia, India and China, according to the Web site. Chinese Foreign Ministry spokesman Ma Zhaoxu said today the value of the yuan wasn’t discussed at the meeting in Brasilia.
Twelve-month non-deliverable yuan forwards were little changed at 6.6140 per dollar, reflecting bets the currency will strengthen more than 3 percent from the spot rate of 6.8255, according to data compiled by Bloomberg.
China has pegged the yuan at about 6.83 against the dollar since July 2008, after allowing it to rise 21 percent in the previous three years.
The Australian dollar dropped 0.9 percent to 92.58 U.S. cents as China’s cabinet said “more forceful” steps are needed to cool speculation after property prices rose at a record pace in March. China is Australia’s biggest trading partner.
Yen Versus Euro
The yen posted a second weekly gain versus the euro, advancing 1.1 percent in the longest stretch of increases since the five days ended Feb. 5. Japan’s currency appreciated 1.1 percent against the dollar this week.
European Union finance ministers said Greece doesn’t have an immediate plan to trigger a rescue package even as the country’s bond yields rose this week to the highest level since before the bailout plan was announced.
Spanish Finance Minister Elena Salgado, whose government holds the EU presidency, said ministers won’t decide on any further action at a two-day meeting in Madrid that began today.
“The Greece story is limiting the euro’s capacity to rally,” said Alan Ruskin, head of currency strategy at Royal Bank of Scotland Group Plc in Stamford, Connecticut. “There is still a lack of enthusiasm for euros.”
Brazil’s real, the best-performing emerging-market currency in the past year, will surge more than 9 percent by the end of 2010 even as the central bank seeks to curb gains by purchasing dollars, according to Stone Harbor Investment Partners.
The currency will appreciate to 1.6 per dollar, driven by higher commodities prices, Pablo Cisilino, who manages $12.5 billion in emerging-market debt in New York, said in an interview.
The real declined 0.5 percent to 1.7576 after reaching 1.7320 yesterday, the strongest level since Jan. 11.
Thursday morning, the Federal Reserve Bank of Philadelphia released its report on regional manufacturing activity in the month of April, showing that the expansion in the manufacturing sector is continuing for the eighth consecutive month.
The Philly Fed said its index of activity in the manufacturing sector rose to 20.2 in April from 18.9 in March, with a positive reading indicating growth in the sector. With the increase, the index came in slightly above economist estimates for a reading of 20.0.
A faster pace of new orders growth contributed to the improvement in the sector, as the new orders index rose to 13.9 in April from 9.3 in March.
On the other hand, the shipments index slipped to 5.6 in April from 13.6 in the previous month, although it remained positive.
The report also showed a notable increase by the inventories increase, which rose to a positive 2.0 in April from a negative 11.0 in March, indicating a turnaround in inventories. The inventories index has now recorded positive readings in two of the last three months.
The Philly Fed also said that firms' responses continue to suggest that labor market conditions are improving, although the number of employees index slipped to 7.3 in April from 8.3 in March.
With regard to inflation, the report showed that the prices paid index rose to 42.7 in April from 38.6 in March, while the prices received index edged up to a positive 1.0 in April from a negative 0.4 in the previous month.
Looking ahead, the future general activity index fell to 44.2 in April from 52.0 in March, but it remained positive for the sixteenth consecutive month.
"Bottom line," said Peter Boockvar, equity strategist for Miller Tabak, "manufacturing remains the key source of strength in this recovery and today's data confirms that."
Earlier in the day, a report released by the New York Federal Reserve showed that conditions for New York State manufacturers improved at a rapid pace in April, with the regional index of activity in the sector rising by much more than economists had expected.
The New York Fed said its general business conditions index jumped to 31.9 in April from 22.9 in March, with a positive reading indicating growth in the manufacturing sector. Economists had been expecting a much more modest increase to a reading of 24.0.
April 16 -- The yen and the dollar strengthened as prospects Greece will struggle to rein in the euro region’s widest budget deficit spurred demand for safer assets.
The common currency was set for its second week of losses against the yen as the extra yield investors demand to hold Greek 10-year bonds over German bunds widened to the most since Greece won a 45 billion euro ($61 billion) bailout package on April 11. The yen and Singapore’s dollar were poised for weekly gains versus the dollar on speculation China will scrap the yuan’s peg to deal with accelerating economic growth.
“Risk appetite is being tempered by a flaring up of concerns over European sovereign risk,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “This may limit near-term gains in the euro, and underpin demand for ‘safe haven’ currencies like the dollar and the yen.”
The dollar was at $1.3553 per euro as of 10:23 a.m. in Tokyo from $1.3573 yesterday in New York. The yen traded at 125.65 per euro from 126.27 yesterday. The yen was at 92.69 per dollar from 93.03, heading for a 0.5 percent advance this week.
The Singapore dollar rose 0.9 percent this week to S$1.3767.
Greek Prime Minister George Papandreou yesterday asked for a meeting with the European Union, the International Monetary Fund and the European Central Bank. Talks will begin in Athens on April 19.
Greece Concerns
The government’s request came after the yield on Greece’s benchmark 10-year government bond surged to as high as 7.381 percent yesterday, higher than the level before the rescue package was announced on April 11.
The premium investors demand to buy Greek debt over comparable German bonds has more than doubled since Dec. 1 on concern that Greece would struggle to trim the deficit and fund its rising debt. The prospect of a euro-region country defaulting or needing a bailout contributed to the euro declining more than 5 percent this year and raised the borrowing costs for other EU nations with large deficits.
The euro region is aiming to prevent the first default of a member nation and offered to put up two-thirds of the package to sustain Greece and protect the single currency. Greece needs to raise 11.6 billion euros by the end of May, and Papandreou has said borrowing at current market interest rates is “unsustainable.”
“It appears just a matter of time before the backstop packages turn into bailout ones for Greece,” said Alex Sinton, a senior dealer at ANZ National Bank Ltd. in Auckland. “Markets hang on every announcement around this and the euro is eventually likely to be hung because of it.”
Yuan Policy
Asian currencies rose against the dollar this week as traders bet the yuan may rise more than 3 percent in the next 12 months after China’s economy expanded at the fastest pace in almost three years.
Yuan forwards were at 6.6125 per dollar, compared with 6.6130 yesterday. China has pegged its currency at about 6.83 against the dollar since July 2008, after allowing it to rise 21 percent in the previous three years.
Speculation about China’s currency policy intensified after U.S. Treasury Secretary Timothy F. Geithner had an unscheduled meeting with Chinese Vice Premier Wang Qishan in Beijing on April 8 and delayed a report which could brand the nation a currency manipulator. In Singapore, the central bank this week announced a one-time revaluation.
“China may revalue the yuan sooner rather than later as part of its ongoing exit from stimulus policies,” said Toshiya Yamauchi, senior foreign-exchange analyst in Tokyo at online currency trading company Ueda Harlow Ltd. “This will also fuel some upward pressure on the yen.”
The Chinese economy grew 11.9 percent from a year earlier, the biggest gain since the second quarter of 2007, the statistics bureau said in Beijing yesterday.
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The euro will drop by the middle of next year to $1.19, a level last seen in March 2006, as government debt forces the European Central Bank to keep benchmark rates at record lows, according to BNP Paribas SA.
The 16-nation currency has fallen 4.6 percent versus the dollar this year on concern Greece will be unable to finance a budget deficit that is more than four times the European Union’s limit of 3 percent of gross domestic product. The median forecast of analysts in a Bloomberg survey is for the euro to trade at $1.33 in 2011.
“A program of severe fiscal consolidation is required, which will result in significant deflationary pressure,” currency strategists at BNP Paribas wrote in a note to clients today. “The ECB is still a long way from hiking interest rates, with a rise in the refinancing rate from the current 1 percent unlikely until the second half of 2011.”
The common currency rose to a three-week high of $1.3692 on April 12 after European governments offered Greece over the weekend a rescue package worth as much as 45 billion euros ($61 billion).
Germany’s parliament will probably be given a vote on any financial aid for Greece, the Finance Ministry said today, risking a showdown with lawmakers. Greek Prime Minister George Papandreou may be forced to activate the emergency-aid package within two weeks, Fitch Ratings Director Christopher Pryce said.
“We expect any euro recovery to remain limited,” the BNP analysts wrote. “Many uncertainties regarding the aid package for Greece remain, which is likely to keep international investors cautious about committing funds to European asset markets.”
The ECB will raise its benchmark interest rate by a quarter-percentage point to 1.25 percent during the first quarter of 2011, according to the weighted average of economists in a Bloomberg survey. The Federal Reserve will boost its target by the same amount in the third quarter of 2010, according to the weighted average in a separate Bloomberg survey.
April 15 -- The yen fell for a sixth day versus the euro, the longest drop since January, as signs the global economy is gaining traction boosted demand for riskier assets.
The yen weakened versus all 16 major counterparts after China’s economy grew at the fastest pace in three years and before data forecast to show manufacturing in the Philadelphia region expanded. The greenback was near a 22-month low versus Canada’s dollar on bets Federal Reserve officials will reiterate they expect to keep interest rates near zero. South Korea’s won rose to its highest since the September 2008 collapse of Lehman Brothers Holdings Inc. as investors bought the nation’s stocks.
“With the slew of economic data signaling the expansion of the global economy and with liquidity remaining ample, risk trades will remain in vogue,” said Masahide Tanaka, a senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second-largest banking group. “This trade will encourage capital flows into riskier assets and away from funding currencies such as the yen.”
The yen dropped to 127.49 per euro as of 12:58 p.m. in Tokyo from 127.29 in New York yesterday, when it reached 127.68, the weakest level since April 5. The dollar was at $1.3649 per euro from $1.3653 yesterday. It reached $1.3692 on April 12, the weakest level since March 18.
The U.S. currency traded at 93.41 yen from 93.23 yen. The greenback fetched C$0.9974 from C$0.9986 yesterday, when it declined to C$0.9954, the lowest level since June 2008.
The MSCI Asia Pacific Index advanced 0.7 percent and the Nikkei 225 Stock Average gained 0.9 percent.
China’s Economy
China’s gross domestic product grew 11.9 percent in the first quarter from a year earlier, the statistics bureau said at a briefing in Beijing today. That was more than the median 11.7 percent estimate in a Bloomberg News survey of 24 economists. Consumer prices rose 2.4 percent in March from a year earlier, today’s data showed, after a 2.7 percent gain in February. Economists forecast a 2.6 percent increase.
“Stronger economic growth and lower inflation in China are very supportive of investor risk appetite and commodity prices,” said John Kyriakopoulos, head of currency strategy in Sydney at National Australia Bank Ltd. “The Australian dollar is likely to strengthen, while ‘safe haven’ currencies such as the dollar and the yen will probably weaken.”
Australia’s dollar advanced to 87.28 yen from 87.17 yen yesterday, and fetched 93.46 U.S. cents from 93.51 cents.
U.S. Data
The Federal Reserve Bank of Philadelphia’s general economic index rose to 20.0 in April from 18.9 in the previous month, according to a separate survey before figures today. Readings greater than zero signal growth.
The Dollar Index traded near a four-week low on prospects that Fed officials will maintain borrowing costs near zero.
Fed Chairman Ben S. Bernanke said in testimony to Congress’s Joint Economic Committee yesterday that policy makers have “stated clearly” that interest rates will be very low for an “extended period.” Atlanta Fed President Dennis Lockhart and San Francisco Fed President Janet Yellen speak today. Fed Governor Kevin Warsh speaks tomorrow.
“Fed policy makers, particularly Bernanke, are reiterating that extremely low rates will be needed for an extended period,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “Given this view, the dollar is likely to weaken.”
Futures on the CME Group Inc. exchange showed a 52.1 percent chance the U.S. central bank will raise its target rate for overnight bank lending by at least a quarter-percentage point by November, down from 54.4 percent a week earlier.
Dollar Index
The Dollar Index, which tracks the dollar against those of six major U.S. trading partners, bought 80.206 from 80.190 yesterday when it declined to 80.031, the lowest level since March 18.
South Korea’s won gained for a second day and the Kospi index of shares climbed to a 21-month high as funds based abroad bought more local equities than they sold on all but two days since the end of February. Moody’s Investors Service yesterday raised Korea’s sovereign credit ratings as a report showed the unemployment rate declined in March by the most in more than 10 years. The Bank of Korea also said it will maintain its accommodative policy for the time being.
“We’re seeing investors having a bullish view on Korea’s economic data, which has been consistent with the recovery,” said Mitul Kotecha, Hong Kong-based head of global currency at Credit Agricole CIB. “The question now is what happens in terms of policy, whether we will see a move in interest rates. I see that potentially happening in June.”
The won appreciated 0.3 percent to 1,108.50 per dollar, according to data compiled by Bloomberg. It reached 1,107.60, the highest level since Sept. 15, 2008.
Benchmark Currency Rates
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