BLBG: Euro Rises to 3-Week High as Greece Gets $61 Billion EU Package
By Candice Zachariahs and Paul Dobson
April 12 (Bloomberg) -- The euro rose to the highest level in more than three weeks versus the dollar after Greece got an international rescue package worth as much as 45 billion euros ($61 billion) at below-market interest rates.
The common currency’s gain was its third in as many days, and helped send the Dollar Index down by the most in a month. South Korea’s won climbed to its strongest level in more than 18 months as the central bank raised its economic forecast. The Australian dollar snapped two days of gains as a government report showed the nation’s housing market may weaken.
“The big, fat bail-out plan for Greece should spark a further wave of risk-taking across the board to the detriment of the dollar today,” strategists at UniCredit SpA team headed by Michael Rottman in Munich wrote in an investor note. “The euro should easily outperform the other foreign-exchange majors.”
The euro gained 0.9 percent to $1.3618 at 9:44 a.m. in London after touching $1.3692, the highest since March 18. It rose as much as 1.4 percent, the biggest gain since September. Last week, the euro traded at $1.3283, less than a quarter of a cent above $1.3268, the lowest level since May 7, 2009. It rose 1.1 percent to 127.21 yen.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, fell 0.8 percent, after falling as much as 1.3 percent earlier today. The dollar traded at 93.41 yen from 93.18 yen last week.
Greek Plan
After Greek borrowing costs surged to an 11-year high, euro-region finance ministers said they would offer as much as 30 billion euros in three-year loans in 2010 at about 5 percent interest. Another 15 billion euros would come from the International Monetary Fund. The three-year Greek bond yield fell 91 basis points to 6.28 percent today.
The package may lend longer-term strength to the euro “if it draws a line under sovereign problems,” driving it toward $1.38 to $1.40 this week, said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia.
“In an environment where currency speculators are very short euro, news about a detailed European Commission- International Monetary Fund package could be the circuit breaker,” he said.
Futures traders decreased bets that the euro will fall against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission showed last week.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 67,223 on April 6, compared with net shorts of 85,326 a week earlier.
‘Relief Rally’
The euro’s gains may prove to be temporary because the region’s economic recovery is slower than that of the U.S., Derek Halpenny, European head of currency research at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, said in an investor note.
“The euro is now undergoing a relief rally but the financial package does not change the medium-term outlook, which is that the euro-zone is likely to underperform other developed economies,” Halpenny said. “That is set to keep the euro on a downward trend through the remainder of 2010.”
The euro will fall to $1.34 by the end of the year, according to the median estimate of 38 analyst forecasts compiled by Bloomberg.
Won Gains
“Some of the structural problems exposed by the whole Greece episode still very much remain in place,” John Horner, a currency strategist in Sydney at Deutsche Bank AG, said in a Bloomberg Television interview. “Question marks about monetary union in the absence of political and fiscal union” will limit gains to $1.40, with the euro falling to the mid-$1.30s “reasonably swiftly,” he said.
The won rose a second day as the Bank of Korea said gross domestic product will expand this year at the fastest pace since 2006. The economy will grow 5.2 percent in 2010, the central bank said today, raising its outlook from a December forecast of 4.6 percent. The currency rose 0.4 percent to 1,114.13 and touched 1,111.38, the most since September 2008.
The MSCI Asia Pacific Index of shares rose 0.1 percent and touched 129.21, the highest level since August 2008.
The Australian dollar fell, erasing earlier gains, as home- loan approvals fell more than economists forecast, signaling five interest-rate increases in six central bank meetings may be curbing demand. New Zealand’s currency retreated as house prices declined for the first time in 10 months.
Currency Options
Australia’s currency weakened to 92.98 U.S. cents, from 93.32 cents in New York on April 9. It earlier touched 93.89 cents, the most since Nov. 16. The currency fetched 86.83 yen from 86.95 yen.
New Zealand’s dollar was at 71.52 U.S. cents from 71.62 cents last week. The so-called kiwi bought 66.80 yen from 66.73 yen.
Trading in currency options shows that emerging economies have become safer relative to developed nations than at any time in almost two years.
“The global perception of risk is changing,” said Jerome Booth, who helps manage $32 billion in emerging-market assets as the head of research at Ashmore Investment Management Ltd. in London. “Where you want to be is non-leveraged places, and that means anything in emerging-markets. This is a start of a trend. The rally in emerging-markets has barely started yet.”
Indonesia’s rupiah strengthened beyond 9,000 against the dollar for the first time since July 2007. The currency gained 0.1 percent to 9,020 per dollar after reaching 8,998, the strongest level since July 13, 2007, as signs Greece’s fiscal crisis is easing boosted demand for higher-yielding assets.
