BLBG:Euro Holds Gains Versus Dollar, Yen Before Merkel and Lagarde Meeting
The euro held a one-day gain versus the dollar before Germany’s chancellor and the International Monetary Fund’s managing director meet amid optimism Europe’s leaders are taking steps to resolve the debt crisis.
The 17-nation currency remained higher against the yen after yesterday’s advance as the leaders of Germany and France discussed a rulebook for closer fiscal union within the euro area. The franc maintained a three-day gain versus the euro on prospects traders may test Switzerland’s currency ceiling after central-bank Chairman Philipp Hildebrand’s resignation. The Australian and New Zealand dollars climbed as Asian stocks rose, boosting demand for higher-yielding assets.
“Some positive comments from European leaders are assisting the euro, though traders are cautious, waiting to see what action plan is put in place and how bond yields react,” said Tim Waterer, a currency dealer at CMC Markets in Sydney. “Short-term we could see the euro crawl back up to $1.2850.”
The euro traded at $1.2783 as of 2:02 p.m. in Tokyo from $1.2765 in New York yesterday. It bought 98.16 yen from 98.08. The dollar was little changed at 76.80 yen. The franc fetched 1.2115 per euro from 1.2121 yesterday. It earlier touched 1.2108, matching yesterday’s high, the strongest since Sept. 20. It rose 0.2 percent to 94.82 centimes per dollar.
The Australian dollar advanced 0.7 percent to $1.0312 and 79.19 yen. The so-called Aussie climbed to a record 80.69 euro cents. New Zealand’s currency rose 0.9 percent to 79.41 and strengthened 0.8 percent to 60.97 yen
The MSCI Asia Pacific Index of shares rose 1.1 percent.
Greece Talks
German Chancellor Angela Merkel said Greece would be the focus of talks with IMF Managing Director Christine Lagarde today in Berlin. “We want Greece to stay in the euro,” Merkel said in a joint press conference with French President Nicolas Sarkozy after the two leaders met yesterday.
The heads of Europe’s two biggest economies are fleshing out a rulebook for budgetary discipline negotiated at a Dec. 9 summit that seeks to create a “fiscal compact” for the euro area. The region’s leaders may complete the rulebook by Jan. 30, one month ahead of schedule.
Greek Prime Minister Lucas Papademos expects to have an outline for a 100 billion-euro ($127.7 billion) debt restructuring plan next week, when talks on the terms for a second financing deal with European Union and IMF officials start in Athens.
The euro may advance as some traders close bets on a drop in the currency before the European Central Bank meets Jan. 12, said David Greene, a Sydney-based senior corporate currency dealer at Western Union Business Solutions, a global payment services network.
Euro Shorts
Futures traders increased bets to a record high that the euro will decline against the dollar, data from the Commodity Futures Trading Commission released Jan. 6 showed. The difference between wagers that the shared currency would fall versus those that it would rise surged to 138,909 in the week ended Jan. 3.
The euro’s gains were limited before Spain and Italy sell securities this week amid concern the nations will struggle to meet funding needs. Spain will auction up to 5 billion euros of bonds due 2015 and 2016 on Jan. 12 and Italy will sell 12 billion euros of bills the same day.
“The first half of 2012 is going to be really difficult for the euro because there’s a significant amount of debt that’s due this quarter,” said Greene. The currency will struggle to rise beyond $1.2850 in the short-term, he said.
The common currency has declined 1.4 percent this year against nine developed-nation peers tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 0.2 percent and the yen has advanced 0.3 percent over the same period.
ECB Rate Cuts
“You’re still going to get pretty deep budget cuts and that’s only going to deepen the recession that the euro zone is already in,” said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia. “That’s just going to encourage the ECB to cut rates even further and the U.S. economy is looking quite good by comparison, so I can see the euro trending lower.”
ECB policy makers meeting this week will hold the key rate at 1 percent, according to the median estimate of economists surveyed by Bloomberg News. ECB President Mario Draghi led the bank through two consecutive 25-basis-point cuts in November and December.
The Swiss franc maintained its advance against the euro and strengthened versus the dollar after Swiss National Bank head Hildebrand resigned yesterday. Thomas Jordan, the bank’s vice president, was appointed interim chairman.
Successor Named Soon
The SNB Bank Council, the central bank’s supervisory board, will hold an extraordinary meeting in Zurich today. A successor will be named as soon as possible, Hansueli Raggenbass, head of the council, said in an interview.
Switzerland’s central bank imposed a ceiling on the franc on Sept. 6, saying it would not allow the currency to strengthen beyond 1.20 per euro.
The resignation and growth in the SNB’s reserves may strengthen the view that it will be “harder for the SNB to defend the peg if the situation in the euro zone deteriorates,” Valentin Marinov, a foreign-exchange strategist at Citigroup Inc. in London, wrote in a note to clients. “We doubt that the peg will be threatened but we suspect that euro-franc could trade very close to the 1.2000 mark.”
To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net
