Euro Rallies as Greece Adopts Austerity Plan Before ECB Meets on Rates
Euro Rallies
Simon Dawson/Bloomberg
The euro rose for the first time in four weeks against the dollar as optimism Greece will solve its sovereign-debt problems.
The euro rose for the first time in four weeks against the dollar as optimism Greece will solve its sovereign-debt problems. Photographer: Simon Dawson/Bloomberg
The euro rose for the first time in four weeks against the dollar as optimism Greece will solve its sovereign-debt problems and stave off a default increased after lawmakers approved fiscal austerity measures.
The 17-nation currency strengthened the most against the Swiss franc in more than two years after Greek Prime Minister George Papandreou won approval of two bills to authorize his 78 billion-euro ($113 billion) package of budget cuts and asset sales, a key to receiving further international financial aid. The Dollar Index fell the most since January and the franc weakened against its 16 most-traded peers as investors sought higher-yielding currencies. The European Central Bank is forecast to raise interest rates next week.
“For the time being, Greece has side-stepped the specter of a disorderly debt default, so that helped to spur a rally in risky assets and that came at the expense of safe-haven destinations, such as the dollar and Swiss franc,” said Joe Manimbo, a market analyst in Washington at Travelex Global Business Payments, a currency-exchange network. “Now that Greece is somewhat less of an issue, the spotlight has shifted onto the ECB, which appears poised to hike interest rates next week.”
The euro rose 2.4 percent to $1.4526, from $1.4188 June 24, and reached $1.4552, the highest level since June 9. It strengthened 2.9 percent to 117.42 yen, from 114.13. The yen fell 0.5 percent to 80.83 per dollar, from 80.43 last week.
Annual Gains
The euro has gained 3 percent this year against nine other developed-nation currencies, according to Bloomberg Correlation- Weighted Currency Indexes. The dollar has declined 6 percent, while the yen has lost 5.6 percent.
The Greek votes came amid strikes and scuffles outside parliament that saw police fire tear gas at demonstrators in Athens protesting budget cuts and asset sales. A total of 155 lawmakers in the 300-strong chamber supported the laws.
German banks have agreed to roll over about 2 billion euros in the Greek bonds they’re holding that mature through 2014, German Finance Minister Wolfgang Schaeuble said June 30.
German and French lenders are the biggest European holders of Greek debt. European banks hold 17.2 billion euros of Greek bonds maturing by the end of 2013, Citigroup Inc. estimated in a June 23 report.
“There is a tremendous amount of institutional desire not to see Greece default, and that is what the market is beginning to understand,” said Boris Schlossberg, director of research at the online currency trader GFT Forex in New York.
ECB Watch
The euro was also supported as traders increased bets the ECB will raise its policy interest rate, pushing euribor futures lower. The implied yield on the March 2012 contract rose four basis points to 2.01 percent.
ECB President Jean-Claude Trichet said June 28 and 30 that policy makers are in a state of “strong vigilance” ahead of the July 7 meeting, a phrase he has used before tightening monetary policy in the past.
IntercontinentalExchange Inc.’s Dollar Index, which tracks the dollar against the currencies of six trading partners including the euro, yen and pound, fell 1.8 percent to 74.298, from 75.665.
The Fed bought $4.9 billion of notes due from June 2017 to June 2018 on June 30, marking completion of the central bank’s $600 billion asset buy-back program in its second round of quantitative easing.
Economic Indicators
Risk assets were boosted as the Institute for Supply Management’s factory index showed July 1 that U.S. manufacturing unexpectedly expanded at a faster pace in June, signaling a decline in U.S. data may be moderating. The measure rose to 55.3 last month from 53.5 in May.
The manufacturing data and the end to the Fed’s purchase program indicated that “the soft patch and QE2 does not appear to be the beginning of a double dip,” 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.
U.S. employers likely added 100,000 jobs last month, keeping the unemployment rate at 9.1 percent, according to the median estimate of 64 economists in a Bloomberg News survey. The Labor Department will release the report July 8.
The franc tumbled against its major peers as investors turned to riskier assets. The monthly gauge that aims to predict the Swiss economy’s direction about six months ahead dropped to 2.23 from 2.30 in May, the KOF Swiss Economic Institute in Zurich said June 29, also weighing on the currency.
Franc Slides
The Swiss currency lost 1.7 percent to 84.78 centimes per dollar and reached a record high of 82.76 centimes on June 28. It slumped 4.1 percent to 1.2316 per euro in the biggest drop since March 2009.
New Zealand’s dollar reached a record against the U.S. currency after a survey by ANZ National Bank Ltd. showed a net 46.5 percent of companies expect the economy will improve over the next year, up from 38.3 percent in May. The net figure subtracts the number of pessimists from the number of optimists.
The kiwi, as the South Pacific island nation’s currency is known, rallied 1.9 percent to 82.73 U.S. cents and reached 83.19, the highest level on record.
To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Joe Ragazzo in New York at jragazzo@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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