Euro Holds Decline on Greek Debt-Swap Talks, Before Portuguese Auctions

The euro maintained a two-day decline as Greece struggles to conclude debt-swap talks with creditors by the end of this week.

The 17-nation currency was 0.1 percent from a one-week low versus the yen before Portugal sells bills today amid concern the nation will follow Greece in needing more aid to avoid default. Australia’s dollar erased an earlier drop after a report showed China’s manufacturing industry unexpectedly expanded last month.

“The euro is still going to suffer for the first half of this year,” said Kurt Magnus, executive director of currency sales in Sydney at Nomura Holdings Inc., Japan’s biggest brokerage. “There’s some negativity while we await the outcome of the Greek swap deal.”

The euro dipped 0.1 percent to $1.3077 as of 11:05 a.m. in Tokyo from the close in New York yesterday when it slid 0.5 percent. The common currency fell 0.1 percent to 99.64 yen after sliding as low as 99.43, the weakest since Jan. 23. The dollar declined 0.1 percent to 76.19 yen and earlier touched 76.15 yen, the lowest since Oct. 31.

Greece’s Prime Minister Lucas Papademos said yesterday he wants to bring the negotiations on a debt-swap agreement with his country’s creditors “to a successful conclusion by the end of the week.” He said he would try to meet German-led demands for a bigger debt writedown by investors and deeper budget cuts by his government.

Portugal will sell 105-day and 168-day bills today. Standard & Poor’s increased the number of Portuguese banks on “creditwatch negative” after it cut the sovereign rating of the country. Yields (GSPT2YR) on Portugal’s two-year notes soared to a record 21.82 percent yesterday.

China Manufacturing

A manufacturing industry purchasing managers’ index in China climbed to 50.5 in January, according to a report from the country’s statistics bureau and logistics federation. That was above the 50 level that separates expansion from contraction and compares with a median estimate of 49.6 in a Bloomberg News survey of economists.

The Australian dollar rose 0.1 percent to $1.0635 after falling as much as 0.3 percent before the Chinese data was released.

The yen has gained 6.9 percent over the past six months, the best performance after the dollar among the 10 currencies tracked by the Bloomberg Correlation-Weighted Indexes.

Japanese Finance Minister Jun Azumi reiterated his stance today that he will take “bold” steps to curb the currency’s appreciation if necessary.

Prospect of Intervention

Japan refrained from selling yen in the foreign-exchange market last month, the Ministry of Finance said yesterday on its website. The government sold the currency on Oct. 31 when it climbed to a postwar record of 75.35 per dollar.

The implied volatility of three-month options of Group of Seven currencies was at 10.55 percent yesterday after touching 10.06 percent on Jan. 23, the lowest since March, according to the JPMorgan G7 Volatility Index. A decrease makes investments in currencies with higher benchmark lending rates more attractive because the risk in such trades is that market moves will erase profits.

“The yen will continue to be bought,” said Nomura’s Magnus. The lack of volatility means there isn’t any urgency for Japan to intervene in the currency market, he said.

The country may act if the yen approaches a new record against the dollar in Asian trading hours, according to Naohiko Baba, Goldman Sachs Group Inc.’s chief economist in Tokyo. Japan could attempt large-scale intervention and continue so-called stealth operations for several days, he wrote in a note.

To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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