Higher-Yielding Currencies Advance as Greek Austerity Vote Boosts Demand
Greece's Prime Minister Lucas Papademos
Kostas Tsironis/Bloomberg
Lucas Papademos, Greece's prime minister.
Lucas Papademos, Greece's prime minister. Photographer: Kostas Tsironis/Bloomberg
Feb. 13 (Bloomberg) -- Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong, talks about the outlook for the global currency market and central banks' monetary policies. She speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)
Feb. 13 (Bloomberg) -- Ray Farris, chief strategist for Asia-Pacific fixed income at Credit Suisse Group AG in Singapore, talks about the outlook for the European sovereign debt crisis and its implications for the global currency market. Farris also discusses Japan's economy and central bank monetary policy. He speaks with Rishaad Salamat and Susan Li on Bloomberg Television's "Asia Edge." (Source: Bloomberg)
Euro Gains as Greece Approves Austerity Measures for Bailout
Simon Dawson/Bloomberg
The euro rose 0.3 percent to $1.3239 as of 7:58 a.m. in Tokyo from last week in New York.
The euro rose 0.3 percent to $1.3239 as of 7:58 a.m. in Tokyo from last week in New York. Photographer: Simon Dawson/Bloomberg
Higher-yielding currencies rose against the dollar and yen as optimism increased that the outlook for Europe’s debt crisis is improving, boosting investor demand for risk.
The euro erased gains after approaching a two-month high against the dollar. Greek Prime Minister Lucas Papademos won approval from parliament yesterday for austerity measures needed to receive a second aid package, which euro-area finance ministers must decide whether to release when they meet Feb. 15. The dollar fell against most of its major counterparts, including the New Zealand dollar and South Africa’s rand, as stocks and commodities rose before reports forecast to show strong U.S. economic growth.
“It looks like risk poured in after the austerity bill,” said Mary Nicola, a currency strategist at BNP Paribas SA in New York. “Better-than-expected data out of the U.S. has been pretty supportive for risk, and if the numbers surprise to the upside, we should see the same trend continue.”
The euro fell less than 0.1 percent to $1.3186 at 5 p.m. New York time, after reaching $1.3322 on Feb. 9, the highest level since Dec. 12. It dropped 0.1 percent to 102.29 yen and declined 0.2 percent to 83.64 British pence. The European common currency has gained 1.7 percent against the dollar this year. The yen was little changed at 77.57 per dollar.
The MSCI World Index (MXWO) added 0.8 percent and Standard & Poor’s 500 Index rose 0.7 percent. Oil increased 1.7 percent to $100.70 per barrel.
New Zealand’s dollar, the biggest gainer against the dollar among the 16 major currencies tracked by Bloomberg, added 0.9 percent to 83.39 U.S. cents and the rand rose 0.9 percent to 7.6813 per dollar.
‘Pretty Good Data’
“We’re going to get a week where the euro group rubber- stamps the Greek austerity, and you’re looking at some pretty good data,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “It’s a good backdrop for risk appetite and not a good week for the dollar.”
Commerce Department figures tomorrow may show a 0.8 percent gain in U.S. retail receipts in January, according to the median forecast of economists surveyed by Bloomberg. That would follow a 0.1 percent advance in December.
The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, was unchanged at 79.02.
With weeks remaining before Greece faces a 14.5 billion- euro ($19.2 billion) bond payment, the austerity bill paves the way for a 22 percent reduction in the minimum wage, smaller pensions and job cuts.
Focus on Brussels
Euro-area finance chiefs will convene in Brussels on Feb. 15 to decide whether to ratify the 130 billion-euro package for Greece. The nation was granted its first aid package of 110 billion euros in May 2010.
“We still have to see how the vote on Wednesday goes,” said Brian Kim, a currency strategist in Stamford, Connecticut, at Royal Bank of Scotland Group Plc. “But even though there was the Greek austerity vote, there’s still plenty of other risks out there. There’s enough things reminding people to not get too exuberant at this stage.”
The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro against the dollar compared with those on a gain -- so-called net shorts -- was 140,593 on Feb. 7, according to figures from the Commodity Futures Trading Commission. That compares with net shorts of 157,546 a week earlier.
Euro Shorts
Official euro short positions and those of Morgan Stanley clients were “scaled back massively” and are near neutral, Calvin Tse, a London-based currency strategist at the company, said in a research note to clients.
The euro has gained 0.7 percent over the past month, the fourth-best performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, after the Norwegian krone, the Swedish krona and the New Zealand dollar. The yen, the worst performer, dropped 4.5 percent, while the dollar has lost 3.6 percent over the same period.
The Norwegian krone rose against the dollar and the yen even after its financial regulator warned that the country faces “severe” imbalances in its credit and property markets as households continue to amass debt at unsustainable levels.
“Growth rates on household debt and house prices are not following a sustainable path,” Morten Baltzersen, director general of the Financial Supervisory Authority in Oslo, said in an interview. “The longer these developments go on, the greater the risk is of a severe imbalance evolving.”
The krone strengthened 0.4 percent to 5.7197 per dollar. It was 0.5 percent higher against the euro at 7.5430.
BOJ Pressure
The yen fell against most of its major peers as Japan’s economy shrank at an annualized 2.3 percent pace in the fourth quarter amid slumping exports that undermined a recovery from last year’s record earthquake. The contraction compared with the median forecast for a 1.3 percent decline in a Bloomberg News survey of economists.
The report underscores pressure on Bank of Japan officials who conclude a two-day meeting tomorrow to consider more monetary easing as gains in the yen worsen losses for exporting companies such as Sony Corp. and Panasonic Corp.
Japan’s Finance Minister Jun Azumi reiterated at a parliamentary budget committee session in Tokyo that he’ll act on excessive and speculative moves in the currency. Japan spent 14.3 trillion yen ($185 billion) in intervention operations last year to stem gains in the currency as it rose to postwar records against the dollar, hurting the nation’s exporters.
In the $4 trillion-a-day currency market, traders calmed by a flood of central bank money are leaving safety for riskier bets against a background of Greece’s potential default and threats of nuclear weapons in Iran.
Borrowing in dollars or yen to buy high-yielding Brazilian reais and Mexican pesos has returned 5.5 percent this year, the best start on record, and reversing last year’s 15 percent loss, the UBS AG V24 Carry Index shows. Market volatility dropped last week to the lowest since August 2008, as measured by a JPMorgan Chase & Co. index.
To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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