Monday, January 23, 2012
Jan.
23 (Bloomberg) -- The euro strengthened to an almost three-week high
against the dollar as French Finance Minister Francois Baroin said
negotiations between Greece and its private creditors are making
"tangible progress."
The 17-nation currency gained versus 13 of its 16
major counterparts tracked by Bloomberg as European Union finance
ministers gather in Brussels to discuss a Greek debt swap, budget rules
and a financial firewall to protect indebted nations. The Australian and
New Zealand dollars gained as the implied volatility of major
currencies reached the lowest in almost a year and commodities and
equities rallied.
"The price action is putting the cart before the horse
by assuming that since risky currencies and the euro are rallying that
something is going to get done in Europe," said Michael Woolfolk, senior
currency strategist in New York at Bank of New York Mellon Corp. "There
has been quite a sea-change in the past couple weeks in terms of market
sentiment and risk appetite and those that were talking about the euro
going to parity are eating their words."
The euro gained 0.8 percent to $1.3034 at 12:01 p.m.
New York time after rising to $1.3053, the highest level since Jan. 4.
The common currency advanced 0.6 percent to 100.26 yen, while the dollar
was little changed at 76.92 yen.
Volatility Slows
Implied volatility of three-month options of Group of
Seven currencies declined to 10.6 percent, the least since March 2011,
when it dropped to lowest since August 2008, according to the JPMorgan
G7 Volatility Index. The decline makes investments in currencies with
higher benchmark lending rates more attractive as the risk in such
trades is that market moves will erase profits.
Australia's dollar gained 0.5 percent to $1.0534, and
New Zealand's currency advanced 0.6 percent to 81.08 cents. Interest
rates are 4.25 percent and 2.5 percent respectively, compared with near
zero rates in the U.S. and Japan.
The dollar and yen fell against all their major
counterparts excluding the Taiwanese dollar as stocks and commodities
rallied. The Standard & Poor's 500 Index gained as much as 0.5
percent and the S&P GSCI index of 24 raw materials rose 0.7 percent.
The dollar has weakened 1.6 percent in the past month,
according to Bloomberg Correlation-Weighted Indexes, which track 10
developed-nation currencies. The yen declined 0.1 percent, and the euro
has slipped 1.7 percent.
Canada's dollar appreciated to within a cent of parity
with the U.S. currency as leading economic indicators increased for a
sixth month in December, according to Statistics Canada. The loonie
gained 0.5 percent to C$1.0079 per U.S. dollar. It has not traded above
parity since Nov. 1.
Euro Bets
Investors betting against the euro since the European
Central Bank cut rates in November may be benefiting from the most
profitable trade in the foreign-exchange market, according to data
compiled by Bloomberg.
Borrowing in euros and investing in the currencies of
Australia, Brazil, Mexico, South Africa and South Korea has returned 7.8
percent since the ECB cut its benchmark interest rate on Nov. 3 for the
first time in more than two years, Bloomberg data shows. So-called
carry trades funded with yen have lost 0.1 percent and gained 1.5
percent when financed with dollars.
Futures traders last week raised bets to a record that
the euro will decline against the dollar. The difference between wagers
that the shared currency will fall versus those that it will rise --
so-called net shorts -- surged to 160,030 in the week ended Jan. 17,
data from the Commodity Futures Trading Commission showed on Jan. 20.
The pound fell 0.8 percent to 83.66 pence per euro
after profit alerts increased by more than 70 percent in the final
quarter of 2011 at U.K.-listed companies, the biggest jump since the
first three months of 2001, according to Ernst & Young LLP.
Greek Talks
Bondholders negotiating a debt swap with Greece have
made their "maximum" offer, leaving it to the EU and International
Monetary Fund to decide whether to accept the deal, said Charles
Dallara, managing director of the Washington-based Institute of
International Finance, who's representing private creditors in the
talks.
The parties were nearing an agreement under which old
bonds would be swapped for new securities, with coupons averaging
between 4 percent and 4.5 percent, according to a person with knowledge
of the discussions three days ago. Germany and the IMF are now insisting
on an agreement closer to 3 percent, the New York Times cited officials
involved as saying.
The German government is considering proposals to run
the temporary and permanent European rescue funds in parallel if needed,
potentially creating a bigger firewall against the region's debt
crisis, according to Steffen Seibert, the government's chief spokesman.
European Union leaders will discuss the proposals at a Jan. 30 summit in Brussels, he said.
Running the two funds simultaneously "has been
suggested on many occasions in the past," said Chris Walker, a currency
strategist at UBS AG in London. "It would effectively create a much
bigger firewall if it happened but there are of course many problems;
increased guarantees and potential German constitutional court
challenges."
--With assistance from Paul Dobson and Anchalee Worrachate in London. Editors: Paul Cox, Dave Liedtka
To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net;
David Goodman in London at dgoodman28@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
