The euro maintained a two-day decline as Greece struggles to conclude debt-swap talks with creditors by the end of this week.
The 17-nation currency touched a one-week low versus the yen before Portugal sells bills today amid concern the nation will follow Greece in needing more aid to avoid default. Australia’s dollar pared declines after a report showed China’s manufacturing industry unexpectedly expanded last month.
“There are some concerns that talks may continue to drag on,” Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore, said about the Greek debt negotiations. “The longer it drags on, the more likely the crisis will continue to worsen. It’s a sell on rallies market” for the euro.
The euro dipped 0.1 percent to $1.3071 as of 2:12 p.m. in Tokyo from the close in New York yesterday when it slid 0.5 percent. The common currency fell 0.2 percent to 99.59 yen after sliding to as low as 99.43, the weakest since Jan. 23. The dollar declined 0.1 percent to 76.20 yen and earlier touched 76.15 yen, the lowest since Oct. 31.
Greece’s Prime Minister Lucas Papademos said yesterday he wants to bring the negotiations on a debt-swap agreement with his country’s creditors “to a successful conclusion by the end of the week.” He said he would try to meet German-led demands for a bigger debt writedown by investors and deeper budget cuts by his government.
Portuguese Debt
Portugal will sell 105-day and 168-day bills today. Standard & Poor’s increased the number of Portuguese banks on “creditwatch negative” after it cut the sovereign rating of the country. Yields (GSPT2YR) on Portugal’s two-year notes soared to a record 21.82 percent yesterday.
“There are concerns that Portugal may also need a second bailout,” said Forecast’s Lee, who expects the euro may fall below the Jan. 13 low of $1.2624, the weakest since August 2010. “If the economy slows even more, banks would come under more pressure,” he said.
Australia’s dollar trimmed losses after data signaled that manufacturing expanded in its biggest trading partner. The purchasing managers’ index in China climbed to 50.5 in January, according to a report from the country’s statistics bureau and logistics federation. That was above the 50 level that separates expansion from contraction and compares with a median estimate of 49.6 in a Bloomberg News survey of economists.
China Manufacturing
“The knee-jerk reaction to the Chinese data was very positive,” said Callum Henderson, global head of foreign- exchange research in Singapore at Standard Chartered Plc. “The fact that it’s still an expansion is positive for higher beta currencies, particularly the Aussie.”
The Australian dollar was little changed at $1.0615 after falling as much as 0.3 percent before the Chinese report.
The yen has gained 7 percent over the past six months, the second-best performance after the dollar among the 10 currencies tracked by the Bloomberg Correlation-Weighted Indexes.
Japanese Finance Minister Jun Azumi reiterated his stance today that he will take “bold” steps to curb the currency’s appreciation if necessary. The nation refrained from selling yen in the market last month, the Ministry of Finance said yesterday on its website. The government sold the currency on Oct. 31 when it climbed to a postwar record of 75.35 per dollar.
The implied volatility of three-month options on Group of Seven currencies was at 10.6 percent yesterday after touching 10.1 percent on Jan. 23, the lowest since March, according to the JPMorgan G7 Volatility Index. A decrease makes investments in currencies with higher benchmark lending rates more attractive because the risk in such trades is that market moves will erase profits.
Lack of Volatility
“The yen will continue to be bought,” said Kurt Magnus, executive director of currency sales in Sydney at Nomura Holdings Inc., Japan’s biggest brokerage. The lack of volatility means there isn’t any urgency for Japan to intervene, he said.
The country may act if the yen approaches a new record against the dollar during Asian trading hours, according to Naohiko Baba, Goldman Sachs Group Inc.’s chief economist in Tokyo. Japan could attempt large-scale intervention and continue so-called stealth operations for several days, he wrote in a note today.
To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.
