Euro Reaches Two-Month High Ahead of Greece Meeting, ECB Policy Decision
The euro reached a two-month high against the dollar and the yen on speculation a meeting of regional finance ministers today will approve a second financing accord for Greece, boosting demand for European assets.
The 17-nation currency erased earlier gains versus the greenback after Greek Finance Minister Evangelos Venizelos said there were still doubts on the agreement needed to win a 130 billion-euro ($173 billion) rescue package. The European Central Bank meets today to set monetary policy, after which President Mario Draghi will hold a press conference.
“The euro is trading higher on expectation a deal is imminent” for Greece, said Neil Jones, head of European hedge- fund sales at Mizuho Corporate Bank Ltd. in London. “We understand only some detail remains until agreement. After the ECB decision arrives, all eyes will switch from Greece to Draghi to gauge the dovishness or hawkishness from the conference.”
The euro was little changed at $1.3255 at 12:01 p.m. London time after rising to $1.3313, the highest since Dec. 12. The common currency rose 0.1 percent to 102.25 yen after reaching 102.77 yen, the strongest since Dec. 13. The yen dropped 0.1 percent to 77.13 per dollar.
Greek Prime Minister Lucas Papademos and the leaders of the three parties supporting his government “agreed on all the points of the program with the exception of one which requires further elaboration and discussion” with the lenders, according to an e-mailed statement from the premier’s office in Athens.
The shared currency pared gains after Finance Minister Venizelos said a deal was still to be finalized. “As the prime minister said, there is agreement on all the issues bar one,” he told reporters in Athens.
Euro-area finance ministers and International Monetary Fund Managing Director Christine Lagarde will meet at 6 p.m. in Brussels, according to a statement by Luxembourg Prime Minister Jean-Claude Juncker, who chairs the group of finance chiefs from the currency bloc.
The ECB will keep its benchmark interest rate at 1 percent today, according to all but two of 57 analysts surveyed by Bloomberg. The others predicted a cut to 0.75 percent. The rate was held at 1 percent at the central bank’s January meeting, following quarter-point reductions in November and December.
Draghi is scheduled to hold a press conference at 2:30 p.m. in Frankfurt.
The euro has gained 0.6 percent in the past month according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar dropped 3.5 percent and the yen declined 3.9 percent.
The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, dropped 0.1 percent to 78.653 after touching 78.407, the lowest since Dec. 8.
Implied volatility of three-month options of Group of Seven currencies fell to 9.95 percent, the lowest since March, from 10.13 percent yesterday, according to the JPMorgan G7 Volatility Index (JPMVXYG7). A decrease makes investments in currencies with higher benchmark lending rates more attractive as the risk in such trades is that market moves will erase profits.
The pound strengthened against the dollar after a U.K. report showed manufacturing production increased more in December than economists forecast.
British factory output rose 1 percent from November, when it fell a revised 0.1 percent, the Office for National Statistics said in London. Economists surveyed by Bloomberg forecast a 0.2 percent gain.
The Bank of England increased bond purchases by 50 billion pounds ($79.2 billion) at a policy meeting today to help cap borrowing costs, as forecast in a Bloomberg News survey.
The pound advanced 0.2 percent to $1.5851 after falling 0.5 percent yesterday.
The euro may rise as high as $1.3627 if it sustains a move above $1.3280, Karen Jones, head of fixed-income, commodity and currency technical analysis at Commerzbank AG in London AG, said, citing trading patterns. The $1.3436 level is the 50 percent Fibonacci retracement level of the October peak, while $1.3627 is the 61.8 percent retracement, Jones wrote in a research note.
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