BLBG:Euro Within 0.5 Percent of Two-Week High Against Dollar Before EU Talks
The euro was within half a percentage point of its strongest level in more than two weeks against the dollar before European officials meet to push ahead with plans to tackle the region’s debt crisis.
The 17-nation currency erased declines against the dollar and the yen before European Union finance ministers meet in Brussels to discuss a Greek debt swap, new budget rules and a financial firewall to protect indebted states. Gains in the dollar and yen were curtailed as speculation that data may show the U.S. economy is accelerating weighed on demand for safer assets. The franc touched a four-month high against the euro, testing the currency floor imposed by the Swiss National Bank.
“We have seen risk appetite move sharply higher, which is helping the euro with markets seemingly attempting to take a more positive tone on Greece,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “It looks likely that a deal will be cobbled together today but the hurdles have got higher.”
The euro was little changed at $1.2922 at 9:22 a.m. London time, after erasing a 0.6 percent drop. It reached $1.2986 on Jan. 20, the highest level since Jan. 4. The euro was also little changed at 99.52 yen, while the dollar was little changed at 77.06 yen.
Bondholders negotiating a debt swap with Greece have made their “maximum” offer, leaving it to the EU and International Monetary Fund to decide whether to accept the deal, said Charles Dallara, who’s representing private creditors in the talks.
Greece Debt Talks
Financial markets in China, Hong Kong, Singapore, South Korea, Taiwan, Indonesia and Malaysia are shut today for the Lunar New Year holiday.
European officials and Greece’s private bondholders agreed in October to implement a 50 percent cut in the face value of more than 200 billion euros ($258 billion) of Greek debt by voluntarily exchanging outstanding bonds for new securities, with a goal of reducing Greece’s borrowings to 120 percent of gross domestic product by 2020.
The parties were nearing an agreement under which old bonds would be swapped for new securities, with coupons averaging between 4 percent and 4.5 percent, according to a person with knowledge of the discussions three days ago. Germany and the IMF are now insisting on an agreement closer to 3 percent, the New York Times cited officials involved as saying.
‘Correction Mechanism’
EU governments negotiating a new rulebook on fiscal policy are hewing to an agenda championed by German Chancellor Angela Merkel and the European Central Bank. The latest draft of the fiscal pact bows to ECB President Mario Draghi’s call for governments to honor their commitment on spending discipline to restore credibility.
The proposed treaty will require a centralized “correction mechanism” to be triggered automatically in cases of “significant” deviations from a target structural deficit of 0.5 percent of gross domestic product, according to a draft dated Jan. 19 obtained by Bloomberg News. Reflecting German demands, countries would have to enact “binding and permanent” balanced-budget rules.
Futures traders last week raised bets to a record that the euro would 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.
Disappointment Risk
“There are some hopes for the meeting but of course there is also the risk of disappointment,” said You-Na Park, a foreign-exchange strategist at Commerzbank AG in Frankfurt. “In the last few weeks the euro was relatively immune to bad news regarding the debt crisis. Therefore we might only see a limited reaction if the market gets disappointed.”
The Swiss franc advanced to the strongest since Sept. 19, as investors continued to test the currency floor of 1.20 per euro imposed by the SNB on Sept. 6. The franc traded little changed at 1.2075 per euro after strengthening to 1.2038. The currency has gained 0.6 percent since former SNB president Philipp Hildebrand, who instigated the floor, announced his resignation on Jan. 9.
The euro has weakened 4.1 percent in the past six months, according to Bloomberg Correlation-Weighted Indexes. The yen rose 8 percent, the best performance among the 10 developed- nation currencies tracked by the gauges. The dollar strengthened 7.5 percent.
U.S. Economy
Demand for the dollar and yen was limited before U.S. data that may add to signs of recovery in the world’s largest economy, curbing demand for safer assets.
The Federal Reserve Bank of Richmond may say the overall business activity index for the central-Atlantic region climbed to 7 in January from 3 last month, according to the median estimate of economists in a Bloomberg survey before tomorrow’s report. U.S. GDP probably rose at a 3 percent annual rate in the September-December period after expanding 1.8 percent in the prior quarter, a separate poll showed ahead of the Commerce Department’s Jan. 27 release.
The Japanese currency fell against nine of its 16 major peers tracked by Bloomberg, with the greenback dropping versus eight. Both currencies fell the most against the high-yielding South Korean won and New Zealand dollar.
To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net.
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
