Euro Falls, Snapping Two-Day Gain, Amid Greek Protests Before Budget Vote
The euro fell, snapping a two-day gain against the dollar, amid protests in the streets of Athens before Greece’s parliament votes on an austerity package needed to secure more financial aid.
The 17-nation currency was still headed for a second quarterly gain on speculation Greece’s debt crisis won’t prevent the European Central Bank from raising interest rates next week to cool inflation. The dollar traded near the strongest in three weeks versus the yen after Treasury yields jumped yesterday, enhancing the allure of U.S. assets. South Korea’s won rose for a second day on speculation the central bank will boost interest rates after the government raised its inflation forecast.
“I’m kind of cautious how much further upside the euro does have,” said Mike Burrowes, currency strategist at Bank of New Zealand Ltd. in Wellington. “I suspect some of the drive higher in the euro has been driven by squaring off short positions rather than reflecting a passing of the vote will actually solve the situation in Greece.”
The euro fell to $1.4352 at 12:25 p.m. in Tokyo from $1.4371 in New York yesterday, when it reached $1.4397, the highest since June 22. It’s down 0.3 percent against the greenback this month and up 1.3 percent this quarter. A short position is a bet an asset’s value will decline.
The shared currency declined to 116.25 yen from 116.58, after reaching 116.67 yesterday, the highest level since June 14. The dollar fetched 81.02 yen from 81.12. It touched 81.27 yen yesterday, the strongest since June 2.
Police fired tear gas to disperse protesters in Athens as labor unions shut down government services before today’s vote. Prime Minister George Papandreou has called on lawmakers to “do their patriotic duty” and pass the 78 billion-euro ($112 billion) austerity package that will determine if his indebted nation can receive further rescue funds.
That, and a successful vote tomorrow to authorize implementation of the plan, would enable Finance Minister Evangelos Venizelos to appear at a meeting of finance ministers this weekend in Brussels.
Losses in the euro were limited after ECB President Jean- Claude Trichet said yesterday that policy makers are in “strong vigilance mode,” supporting expectations for an interest-rate increase at the central bank’s meeting on July 7. The ECB raised its benchmark rate in April for the first time in almost three years, lifting it by a quarter point to 1.25 percent.
“The euro’s got a bit more upside from here,” said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia, the nation’s biggest lender. “While we hear a lot about Greece, it’s really a lot of noise because the bottom line is that the European economy is strong enough to get the ECB raising rates.”
The dollar strengthened against most of its 16 major counterparts on prospects rising returns on U.S. assets will attract global investors. Treasury 10-year yields touched 3.05 percent yesterday, the highest since June 15, and were at 3.02 percent today.
“The back-up in yields that we did see yesterday in the U.S. should provide some support, particularly against cross currencies like the Japanese yen,” said John Horner, a currency strategist in Sydney at Deutsche Bank AG.
IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, advanced 0.1 percent to 75.093, halting a two-day loss.
The dollar has fallen 4.9 percent this year, according to Bloomberg Correlation-Weighted Currency Indexes. The yen is down 4.7 percent, while the euro is up 2.8 percent.
The yen gained against the euro for the first time in three days on speculation Japanese companies bought the currency after yesterday’s declines.
The won rose the most of all the 16 major currencies against the dollar after the presidential office said yesterday that consumer-price inflation will be around 4 percent this year, compared with the government’s target of 3 percent.
“Comments on inflation are adding to speculation that the central bank may need to raise interest rates in the second half,” said Kong Dong Rak, fixed-income analyst at Taurus Investment & Securities Co. in Seoul.
The won traded at 1,079.45 per dollar from 1,083.55 yesterday. South Korea’s currency gained 1.6 percent versus the greenback this quarter.
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