Euro Erases Losses as Official Sees ‘Some Optimism’ on Greece

The euro erased losses after an official told reporters there was “still reason for some optimism” on Greek bailout talks as the region’s finance officials gathered in Brussels.

The shared currency also got a lift on a Bild newspaper report that the Greek government accidentally sent the wrong letter to Brussels on Thursday, with the intended version going a step further accepting conditions agreed to by the previous government. Denmark’s krone was whipsawed as the head of the Danish Economic Council contradicted a Reuters report that he had advised capital controls to defend the currency’s peg to the euro.

“Everything is just trading on the headlines,” Eimear Daly, a currency strategist at Standard Chartered Plc in London, said by phone. “It does seem like we have such a wide gap between where Greece is and where Germany is, and it’s just a question of whether they’re going to be able to bridge that gap.”

The euro was little changed at $1.1361 at 11:46 a.m. New York time after declining as much as 0.8 percent. The krone fell 0.2 percent to 6.5619 per dollar after sliding 1 percent.

Three-month implied volatility for the euro against the dollar rose for the first time in nine days, climbing to 10.59 percent, set for the highest close in more than a week.

European ‘Sideshow’

“It’s quite complicated, I’m talking to the main players trying to find solutions,” Eurogroup President and Dutch Finance Minister Jeroen Dijsselbloem said in the Belgian capital. “It will cost some time but there’s still reason for some optimism, but it’s very difficult.”

An agreement on extending Greece’s bailout program, which expires at the end of February, appears unlikely, a European Union official said. That would lead to more talks Sunday or Monday, the official said.

Without aid, the government of Prime Minister Alexis Tsipras -- who apologized for an “administrative error” in sending the wrong letter, said Bild -- risks running out of cash as early as next month. By bowing to German demands, the premier who promised to end austerity risks a domestic backlash.

“It’s a sideshow,” said Bernd Ondruch, managing partner at London-based hedge fund Astellon Capital Partners LLP, who manages $700 million. “Policy makers in Greece haven’t necessarily gained a lot of ground in Europe when they went on their road show in terms of making their case. If anything, it just hardened the stance of the German-led camp.”

The euro declined 4.1 percent versus a basket of nine developed-nation peers this year, according to Bloomberg Correlation-Weighted Indexes. The yen climbed 4.3 percent and the dollar rose 3.1 percent.

Wise Men

The krone slid after a report by Reuters said the central bank was willing to use capital controls if necessary to defend the peg to the shared currency, citing Hans Joergen Whitta-Jacobsen, the head of the Economic Council, an independent body of academics known as the “Wise Men.”

The currency trimmed the decline as, in a follow up interview with Bloomberg, Whitta-Jacobsen said he has never advised the government or the central bank to impose capital controls. The central bank, which has said it will do what is necessary to defend its currency regime, declined to comment on the initial report by Reuters.

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