Euro Advances on Greece Plan Optimism; Dollar Climbs Versus Yen

The euro gained against the majority of its most-traded counterparts on speculation Greece’s parliament will approve an austerity package needed to ensure more financial aid.

The dollar reached the strongest level against the yen in three weeks as U.S. Treasury yields jumped. The euro erased losses versus the greenback after European Central Bank President Jean-Claude Trichet said policy makers are in “strong vigilance mode,” signaling they intend to raise interest rates next week. Sweden’s krona tumbled to a seven-month low against the euro after retail sales slumped.

“My sense is that the widespread market expectation is a yes vote and a favorable outcome,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York. “The reaction in the euro to a yes vote will probably be the same as it was with the confidence vote last week. The euro will go a little higher, but not far or for long.”

The euro rose 0.6 percent to $1.4371 at 5 p.m. in New York, from $1.4287 yesterday. The gain reduced the shared currency’s loss versus the greenback for the month to 0.2 percent. It has risen 1.5 percent for the quarter. The euro gained 0.9 percent to 116.58 yen, from 115.58 yen. It has lost 0.7 percent for the month and dropped 1 percent for the quarter.

The Swiss franc reached a record high against the dollar, touching 82.76 centimes. The euro rose 0.2 percent against the franc to 1.1957, from 1.1933 yesterday. It touched a record low of 1.1806 on June 24.

Treasury Yields

The dollar strengthened against the yen as 10-year U.S. Treasury yields rose above 3 percent for the first time in almost a week, increasing the appeal to international investors.

The greenback gained as much as 0.5 percent to touch 81.27 yen, the highest level since June 2, before trading at 81.12 yen, up 0.3 percent. The 10-year U.S. yield increased 10 basis points, or 0.1 percentage point, to 3.03 percent, making the debt more attractive than comparable Japanese debt, which yields 1.09 percent.

IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, fell 0.5 percent to 75.034.

“This is a premature broad-based rally for risk because the market sees the reality of the sovereign-debt default as its major obstacle, so it’s jumping the hurdle today of the Greek parliamentary vote, assuming it goes through and that the world’s problems are solved,” said Andrew Wilkinson, senior market analyst at Interactive Brokers Group LLC in Greenwich, Connecticut.

The Standard & Poor’s 500 Index rose 1.3 percent. The Thomson Reuters/Jefferies CRB Index of raw materials increased for the first time in five days, climbing 1.7 percent.

Greek Votes

Greek lawmakers vote tomorrow on the austerity package and vote later on a measure implementing it. Prime Minister George Papandreou won a confidence vote last week 155-143.

The euro rose after Trichet’s comments at a press conference in Amsterdam. The ECB raised its benchmark rate in April for the first time in almost three years, lifting it by a quarter point to 1.25 percent.

“The ECB is moving ahead with tightening and trying to be as independent as it possibly can,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “It’s trying to show the markets that it’s trying to stay out of the situation and put as much burden on as they can on the politicians.”

German Banks

Germany’s biggest banks and insurers will meet with the Finance Ministry in Berlin tomorrow as they seek to reach an agreement on their role in a Greek aid package, according to two people with knowledge of the matter.

Under a French proposal, half the Greek debt held by banks and insurers maturing in the next three years would be swapped for new 30-year Greek bonds. The redemptions from another 20 percent would be invested in a special purpose vehicle that would serve as collateral for the banks, two people familiar with the plan said.

One-month implied volatility for the euro-dollar exchange rate snapped a three-day advance, declining to 13.1. It was at 12.3 percent at the beginning of the month.

The Swedish krona plunged to its weakest level in almost seven months against the euro after Statistics Sweden said retail sales slipped to an annual 1.1 percent in May.

Data Impact Limited

“You saw Sweden react to weak retail sales, but the impact of data is much more limited than is normally the case,” said Steven Englander, head of Group of 10 currency strategy at Citigroup Inc. in New York. “It’s just European headlines today.”

The currency slid to 9.2738 to the euro, the weakest level since Nov. 29, before trading at 9.25, down 0.6 percent.

The krona has dropped 3 percent over the past month, making it the worst performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Currency Indexes. The Swiss franc climbed 3.1 percent, and the euro gained 1.2 percent, the indexes show.

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