Euro Gains After Greek Debt Bailout Agreement as Risky-Currencies Rally

The euro rose against a majority of its most-traded counterparts as an agreement on a second international bailout for Greece reduced investor concern the region’s debt crisis will worsen.

The 17-nation currency reached a three-month high against the yen this week and broke through key technical levels against its Japanese and U.S. peers. The dollar dropped against its higher-yielding counterparts as reports showed an improving economic recovery, damping demand for safety. Currencies of commodity-exporting countries rallied as oil surged and volatility fell to a three-year low. The European Central Bank will offer banks unlimited three-year loans next week.

“There was some optimism following the Greek deal and optimism ahead of next week’s second liquidity tender by the ECB,” said Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage. “The euro is rallying and all gauges of risk appetite are pointing to a risk-on week, whether it’s the Australian dollar, the New Zealand dollar, crude oil or the dollar being down.”

The euro rose 2.3 percent to $1.3448, reaching $1.3487, the highest level since Dec. 2. It rallied 4.4 percent to 109.18 yen, reaching 109.25 yesterday for the first time since Oct. 31. The yen weakened 2.1 percent to 81.20 per dollar and touched 81.22, the weakest level since July.

Franc Leads Gains

The implied volatility of three-month options on G-7 currencies as tracked by the JPMorgan G7 Volatility Index (JPMVXYG7) fell to 9.71 percent yesterday, the least since Aug. 8, 2008, as options traders scaled back the risk of large exchange-rate swings. Lower volatility makes investments in currencies with higher benchmark rates more attractive because the risk in such trades is that market moves will erase profits.

The Swiss franc led gains against the dollar among the 16 most-traded currencies tracked by Bloomberg. The currency appreciated 2.6 percent to 89.60 centimes and gained 0.3 percent to 1.2051 per euro. The Swiss National Bank on Sept. 6 imposed a currency ceiling in the rate, at 1.20 per euro, for the first time since the 1970s after the Swiss currency surged to record strength.

The shared currency rose for a third week against the yen after euro-area finance ministers awarded 130 billion euros ($175 billion) in aid to Greece and reached an accord for greater debt relief from investor representatives in an exchange offer to tide the nation past a bond redemption next month.

Greece’s government yesterday formally asked investors to exchange their holdings of government debt for new securities in the biggest sovereign restructuring in history.

German Confidence

The currency also benefited after a report showed German business confidence rose to the highest level in seven months, easing crisis concern. Munich-based Ifo institute said its business climate index climbed to 109.6 from 108.3 in January, the highest reading since July.

The euro rose for a seventh-straight day against the yen, the longest run since January 2010, after demand was boosted by the prospect that Group of 20 officials meeting this weekend may discuss committing further resources to Europe’s debt crisis.

“You could put the decline in the yen and the gain in some of the European currencies in the context of a more constructive mood on the market and positive attitudes about recent developments,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York. “Developments are continuing to move in an overall favorable direction and that’s why we’re seeing the markets behaving as they are.”

470 Billion Euros

Financial institutions will ask the ECB for 470 billion euros ($630 billion) in three-year funds for allotment on Feb. 29, the median of 28 estimates in a Bloomberg survey showed.

Futures traders decreased their so-called net-short positions on the euro versus the dollar to 142,159 contracts in the week ended Feb. 21. The positions reached a record high of 171,347 last month.

The shared currency traded above its 100-day moving average of $1.3308 Feb. 23 for the first time since Oct. 31. It broke through its 200-day moving average against the yen yesterday for the first time since August.

The yen dropped for a third straight week against the dollar. The Bank of Japan said this month it would expand its asset-purchase program to 30 trillion yen ($372 billion) from 20 trillion, with 19 trillion yen set aside for government bonds. The central bank also said it will target 1 percent inflation “for the time being.”

The greenback weakened against its higher-yielding counterparts, including the Swedish krona and South Africa’s rand, as data showed a quickening recovery.

Jobless Claims

Applications for U.S. jobless benefits were unchanged in the week ended Feb. 18 at 351,000, the fewest since March 2008, Labor Department figures showed Feb. 23. The Thomson Reuters/University of Michigan final index of consumer sentiment for February rose to 75.3 from 75 at the end of last month.

“The U.S. data is improving and no doubt that’s adding to the positive sentiment,” said Tony Allen, global head of foreign-exchange trading in Sydney at Australia & New Zealand Banking Group Ltd. “Higher equity markets in the States equals higher risk currencies.”

Sweden’s krona rose 2.5 percent to 6.5580 per dollar and South Africa’s rand added 1.9 percent to 7.5986 against the greenback.

Rally in Oil

The riskier currencies also benefited from a rally in oil prices. Crude for April delivery advanced 5.3 percent to $109.62 a barrel, reaching $109.95, the highest since May.

Norway’s krone strengthened to 7.4371 per euro Feb. 23, the highest level in nine years, before ending the week up 2 percent at 7.4971. It added 2.4 percent to 5.5745 per dollar.

Australia’s dollar strengthened for an eighth week against the yen, its longest such streak since 2003, as former Prime Minister Kevin Rudd said he will challenge his successor, Julia Gillard, in a Feb. 27 leadership ballot as the ruling Labor party seeks to end weeks of rivalry that’s undermining the government.

Brazil’s real gained even as the nation’s central bank intervened in both the forward and spot markets in an attempt to stem the currency’s 9.9 percent three-month rally.

The currency appreciated 0.2 percent to 1.7100 per dollar and strengthened to beyond 1.70 for the first time since October.

To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Allison Bennett in New York at abennett23@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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