SD: Euro Rises Against Dollar as EU to Seek Acceptable Greek Path
June 19 (Bloomberg) -- The euro strengthened against the dollar after a European Union official said a politically acceptable path for renegotiating Greece’s bailout conditions will be sought.
The 17-nation currency erased a decline versus the yen as Spain sold its maximum target of 12- and 18-month bills even as yields rose. Once a Greek government is formed, representatives of the so-called troika of the EU, International Monetary Fund and European Central Bank will travel to Athens and evaluate any requests for adaptations in the aid program, the official told reporters on condition of anonymity in Brussels today. The pound weakened versus the euro after U.K. inflation slowed to the least in 2 1/2 years in May.
“Hope that something could be done means the euro continues to find some support,” said Jane Foley, a senior currency strategist at Rabobank International in London, referring to Greece. “The euro may be confined to narrow ranges with the market wary of disappointment. The market failed to follow through yesterday after the Greek election as it had already priced in a lot of good news.”
The euro appreciated 0.4 percent to $1.2624 at 8:26 a.m. New York time. It reached $1.2748 yesterday, the strongest level since May 22. The shared currency was little changed versus the yen at 99.60. The dollar weakened 0.3 percent to 78.90 against the Japanese currency.
Spanish Sale
The Spanish Treasury sold 2.4 billion euros of 12-month bills at an average rate of 5.074 percent, 2.1 percentage points more than the 2.985 percent paid on May 14, the Madrid-based Bank of Spain said today. It also auctioned 639.3 million euros of 18-month debt at 5.107 percent, compared with 3.302 percent last month.
Federal Reserve policy makers gather today amid speculation they will consider further stimulus measures to sustain U.S. growth. The Fed will review new forecasts at its two-day meeting as it contends with continuing financial stress in Europe and a U.S. unemployment rate that has remained above 8 percent for 40 consecutive months.
JPMorgan Chase & Co. and Jefferies Group Inc. predict policy makers will extend the Fed’s so-called Operation Twist. The $400 billion program, which was announced in September and ends this month, involved selling short-maturity debt and buying longer-term bonds.
“A mere extension of Operation Twist may disappoint markets that have been expecting something more aggressive,” said Yuki Sakasai, a currency strategist at Barclays Capital in New York. “That may lead to some selling of risk currencies, and buying back of the dollar.”
Dollar Index
The Dollar Index, which tracks the U.S. currency against those of six trading partners, declined 0.3 percent to 81.70, after yesterday touching 81.161, the lowest level since May 22.
G-20 leaders are in Los Cabos, Mexico, for a second consecutive summit to be dominated by Europe’s debt woes, with Spain’s Prime Minister Mariano Rajoy also attending the talks. They have focused their response to Europe’s financial crisis on stabilizing banks.
The IMF got commitments for $456 billion to be used as a “second line of defense” to resolve and prevent financial crises, Managing Director Christine Lagarde said in a statement.
With the addition of new pledges from 12 nations that also includes Russia, India and South Africa, the Washington-based lender said its funding were up from the roughly $430 billion it said it had secured in April. The temporary contributions will add to the $380 billion the IMF currently has available for lending.
Bank Bailout
Spain asked for a bailout of as much as 100 billion euros to prop up its banks on June 9, becoming the fourth member of the euro bloc to request international aid.
Spanish 10-year yields jumped 28 basis points to 7.16 percent yesterday, above the 7 percent rate that pushed Greece, Ireland and Portugal to seek rescue packages. The rate dropped 11 basis points, or 0.11 percentage point, to 7.05 percent today.
The euro is down from this year’s high of $1.3487 on Feb. 24, and has depreciated about 6.6 percent in the past 12 months against a basket of nine developed-market peers, according to Bloomberg Correlation-Weighted Indexes.
Hedge funds and other large speculators reduced trades that would profit from a drop in the euro against the dollar last week from a record the week before, figures released on June 15 by the Washington-based Commodity Futures Trading Commission showed.
Euro-Drop Bets
The difference in the number of wagers on a drop in the euro against the greenback versus those on an advance was 195,187 contracts on June 12, from 214,418, the data showed.
The implied volatility for one-month euro-dollar options, which indicates expected swings in the underlying currencies, slipped to 11.42 percent. It reached a high of 13.29 percent last week. While that’s up from 8.25 percent in April, it’s below last year’s peak of 18.42 in September. The JPMorgan G7 Volatility Index was at 10.53. It rose to 11.88 this month from 8.84 in April, the least since November 2007.
The euro’s trend higher against the dollar since June 1 may be at risk, according to data compiled by Bloomberg. The 17- nation common currency faces so-called resistance versus the dollar at yesterday’s high of $1.2748, and may find support versus the dollar at $1.2288, the June 1 low, the data show.
A resistance level is an area on a price graph where analysts anticipate a grouping of orders to sell a currency and a support level occurs where they anticipate buy orders to be clustered.
U.K. consumer prices rose 2.8 percent in May from a year earlier, compared with a 3 percent increase in April, the Office for National Statistics said today in London. That’s the weakest since November 2009.
The pound depreciated 0.3 percent to 80.51 pence per euro and was little changed versus the dollar at $1.5679.
