BLBG:Euro Advances From Five-Week Low Versus Yen on IMF-Cyprus Deal
The euro strengthened from a five- week low versus the yen after the International Monetary Fund said it would provide 1 billion euros ($1.28 billion) of aid to Cyprus, boosting demand for the region’s assets.
The 17-nation currency reversed an earlier decline versus the dollar on optimism the IMF deal will help stabilize Cypriot banks and reduce public spending. Australia’s dollar advanced against all 16 of its major counterparts after the nation posted a smaller-than-estimated trade deficit. The yen weakened amid speculation the Bank of Japan (8301) will boost monetary stimulus when it ends a two-day meeting tomorrow.
“The headlines on the IMF and Cyprus gave the euro a little bit of a lift,” said Jeremy Stretch, head of foreign- exchange strategy at Canadian Imperial Bank of Commerce in London. “The reality is that IMF help always comes with strings attached.”
The euro gained 0.1 percent to 119.85 yen at 7:09 a.m. in New York after dropping to 119.15 yesterday, the lowest level since Feb. 26. The common currency was little changed at $1.2820 after weakening as much as 0.2 percent. The yen declined 0.1 percent to 93.51 per dollar.
IMF Managing Director Christine Lagarde announced the staff-level agreement with Cyprus today on the 10 billion-euro program agreed on March 25. The deal calls for Cyprus to restructure its two largest banks, reduce budget deficits and adjust its wage and pension systems.
‘Challenging Program’
“This is a challenging program that will require great efforts from the Cypriot population,” Lagarde said in a statement. “We believe that it provides a durable and fully financed solution to the underlying problems facing Cyprus and provides a sustainable path toward a recovery.”
The euro has weakened 1.9 percent in the past month, the worst performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar dropped 0.2 percent and the yen was little changed.
The ECB’s Governing Council meets tomorrow to decide on interest rates. Of 56 economists surveyed by Bloomberg News, 54 expect the central bank to keep its main refinancing rate at a record-low 0.75 percent, while two predict a cut.
“There is some euro bearishness ahead of the ECB,” said Raghav Subbarao, a currency strategist at Barclays Plc in London. “Cyclical data has been extremely weak and European growth prospects look dim compared to the rest of the world.”
Aussie Gains
The so-called Aussie rose for a second day against the yen after the Bureau of Statistics said Australia’s imports outpaced exports by A$178 million ($186 million) in February. Economists surveyed by Bloomberg predicted a A$1 billion shortfall.
“The Aussie was braced for another large deficit, and it got something close to balance,” said David de Garis, a senior economist at National Australia Bank Ltd. in Melbourne. “If this is a sign that the export expansion is coming through, it plays into the wider growth story.”
Australia’s currency appreciated 0.3 percent to $1.0485 and gained 0.4 percent to 98.03 yen.
The BOJ will say tomorrow it will boost monthly bond purchases by about 50 percent to 5.2 trillion yen, according to the average forecast in a survey of economists by Bloomberg.
“Yen weakness is not over,” Callum Henderson, head of currency research at Standard Chartered Plc in Singapore, said in a Bloomberg Television interview. “We do expect fireworks at the Bank of Japan policy meeting results.”
The yen has tumbled 16 percent against the dollar during the past six months and slid 15 percent versus the euro.
To contact the reporter on this story: Neal Armstrong in London at narmstrong8@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
