The euro strengthened to an almost three-week high against the dollar as French Finance Minister Francois Baroin said negotiations between Greece and its private creditors are making “tangible progress.”
The 17-nation currency gained versus 13 of its 16 major counterparts tracked by Bloomberg as European Union finance ministers gather in Brussels to discuss a Greek debt swap, budget rules and a financial firewall to protect indebted nations. Norway’s krone and Canada’s dollar rallied against the dollar as oil gained after the European Union agreed to ban crude imports from Iran.
“The Greece situation is the main source of near-term headline risk and the market is betting on the successful outcome of those talks, because the alternative would be too disruptive,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “We saw another record high in euro shorts from last week and we are also still in the process of unwinding some of those.” A short is a bet an asset will decline.
The euro gained 0.6 percent to $1.3013 at 5 p.m. New York time after rising to $1.3053, the highest level since Jan. 4. The common currency advanced 0.6 percent to 100.25 yen, while the dollar was little changed at 77.02 yen.
Futures traders raised bets to a record last week that the euro will decline against the dollar. The difference between wagers that the shared currency will fall versus those that it will rise -- so-called net shorts -- surged to 160,030 in the week ended Jan. 17, data from the Commodity Futures Trading Commission showed on Jan. 20.
The seven-day relative strength index for the euro versus the dollar rose to 66.3. A reading above 70 signals an asset may have climbed too far too quickly and may be overbought.
“I interpret this bounce as a short covering; this move may be getting to the overdone stage with so many questions remaining,” said Carl Forcheski, a director on the corporate currency sales desk at Societe Generale SA in New York. “We have a little bit of resistance coming up at $1.3077 and then the 50-day moving average.”
Implied volatility of three-month options of Group of Seven currencies declined to 10.7 percent, the least since March 2011, when it dropped to lowest since August 2008, according to the JPMorgan G7 Volatility Index (JPMVXYG7). The decline makes investments in currencies with higher benchmark lending rates more attractive as the risk in such trades is that market moves will erase profits.
Australia’s dollar gained 0.4 percent to $1.0525, and New Zealand’s currency advanced 0.5 percent to 81.01 cents. Interest rates are 4.25 percent and 2.5 percent respectively, compared with near zero rates in the U.S. and Japan.
“We are seeing the U.S. dollar as the most strongly net sold across the board as investors allocate the significant cash levels they carried over from last year,” Samarjit Shankar, a managing director for the foreign-exchange group in Boston at Bank of New York Mellon, wrote to clients today. “Amongst G-10 currencies, we are seeing net buying of the Swedish krona, sterling, Canadian dollar and New Zealand dollar, while the Euro has also been able to attract fresh inflows for two successive sessions.”
The dollar and yen fell against all their major counterparts as stocks and commodities rallied. The Standard & Poor’s 500 Index gained as much as 0.5 percent and the S&P GSCI index of 24 raw materials rose 1.1 percent.
The dollar has weakened 1.5 percent in the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The yen is little changed, and the euro has slipped 1.7 percent.
Canada’s dollar appreciated to within a cent of parity with the U.S. currency as leading economic indicators increased for a sixth month in December, according to Statistics Canada. The loonie gained 0.5 percent to C$1.0086 per U.S. dollar. It has not traded above parity since Nov. 1.
Norway’s krone was the best performer against the dollar, gaining 1.2 percent to 5.8612 per dollar as crude oil gained for the first time in four days. Brent oil for March settlement advanced 0.7 percent to $110.95 a barrel on the London-based ICE Futures Europe exchange.
The pound fell 0.7 percent to 83.59 pence per euro after profit alerts increased by more than 70 percent in the final quarter of 2011 at U.K.-listed companies, the biggest jump since the first three months of 2001, according to Ernst & Young LLP.
Bondholders negotiating a debt swap with Greece have made their “maximum” offer, leaving it to the EU and International Monetary Fund to decide whether to accept the deal, said Charles Dallara, managing director of the Washington-based Institute of International Finance, who’s representing private creditors in the talks.
The parties were nearing an agreement under which old bonds would be swapped for new securities, with coupons averaging between 4 percent and 4.5 percent, according to a person with knowledge of the discussions three days ago. Germany and the IMF are now insisting on an agreement closer to 3 percent, the New York Times cited officials involved as saying.
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