BLBG:Euro Halts Gain to Three-Week High as EU Officials Discuss Greek Debt Swap
The euro halted an advance to a three-week high on signs European officials and Greek bondholders remained divided on a debt-swap deal to stem the region’s fiscal crisis.
Luxembourg Prime Minister Jean-Claude Juncker said talks aimed at relieving Greece’s debt burden were “off track.” Demand for the dollar was limited before the Federal Reserve begins a two-day policy meeting, after which it will provide forecasts for its benchmark interest rate for the first time. Implied volatility for the currencies of Group of Seven nations was near the lowest level since March 2011.
“It’s unlikely we’ll see continued buying of the euro,” said Kumiko Gervaise, an analyst in Tokyo at Gaitame.com Research Institute Ltd., a unit of Japan’s largest online currency margin-trading company. There’s no guarantee that Greece can return to markets for funding “even with the debt- swap deal,” she said.
The euro traded at $1.3005 at 7:09 a.m. in London from $1.3013 in New York yesterday, when it reached $1.3053, the most since Jan. 4. The common currency was little changed 100.17 yen after gaining 0.6 percent yesterday. The dollar was unchanged at 77.02 yen.
Implied volatility of three-month options of G-7 currencies dropped to as low as 10.06 percent yesterday, the least since March 2011, and was at 10.13 percent today, according to the JPMorgan G7 Volatility Index (JPMVXYG7). Financial markets in Asian countries including China and South Korea were shut today for the Lunar New Year holiday.
Debt-Swap Talks
Juncker called on creditors to drop demands that new Greek bonds carry coupons averaging 4 percent, he said early today after chairing a meeting of European finance ministers in Brussels. Policy makers also discussed new fiscal rules and an enhanced rescue fund for debt-strapped countries before a European leaders’ summit next week.
Bondholders negotiating the debt swap with Greece have made their “maximum” offer, Charles Dallara, managing director of the Washington-based Institute of International Finance, told Athens-based Antenna TV last weekend. Dallara is representing private creditors in the talks.
The euro gained 0.7 percent over the past week according to Bloomberg Correlation Weighted Indexes, which tracks 10 developed-market currencies, before data today that may add to signs that the region’s economy is stabilizing.
A euro-area composite index based on a survey of purchasing managers in both manufacturing and services industries rose to 48.5 this month from 48.3 in December, London-based Markit Economics will probably say in an initial estimate today, according to the median projection of economists in a Bloomberg News survey. That would still be the fifth monthly reading below 50, indicating contraction.
Europe Consumer Confidence
Euro-area consumer confidence gained ground in January, a report showed yesterday. An index of household sentiment rose to minus 20.6 from a revised minus 21.3 in December, the Brussels- based European Commission said in an initial estimate. Economists surveyed by Bloomberg forecast a drop to minus 21.4.
“Some of the better economic data we’ve seen recently and short-covering is contributing” to the euro’s gains, said Emma Lawson, a currency strategist at National Australia Bank Ltd. in Sydney. “The market had been incredibly short euro so this rally is also likely to be some position unwinding.” A short position is a bet that an asset will decline in value.
Futures traders raised bets to a record last week 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.
FOMC Meeting
The Fed last week released blank templates showing the format of its forecasts for the key rate, which will be provided to the public for the first time tomorrow. It will offer two charts along with the forecasts, according to a statement released on Jan. 20.
The Federal Open Market Committee left its target for overnight loans between banks in a range of zero to 0.25 percent last month and reiterated that economic conditions may warrant “exceptionally low” rates “at least” through mid-2013. The central bank is expected to keep the key rate unchanged on Jan. 25, according to all 111 economists in a Bloomberg survey.
‘More Dovish’ Fed
“The market is generally long dollars and unwinding those at the moment,” National Australia Bank’s Lawson said. “Most participants are saying they expect a more dovish board with rates on hold for an extended period of time.”
The yen was little changed versus the greenback after the Bank of Japan cut its economic growth forecast for next year to 2 percent from 2.2 percent projected in October as it held its key rate near zero.
The Australian dollar retreated from a 12-week high as its 10-day relative strength index against the greenback stood at the 70 level that some traders see as a sign that an asset may be about to reverse direction.
Australia’s currency weakened 0.2 percent to $1.0509 from yesterday, when it touched $1.0573, the highest since Oct. 31.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
