BLBG:Euro Falls From 2-Month High as Greek Aid Withheld; Aussie Dollar Weakens
The euro declined from yesterday’s two-month high against the dollar as European finance ministers withheld a bailout package for Greece, damping demand for the region’s assets.
The greenback strengthened against all but one of its 16 major peers as stocks fell, boosting demand for the world’s reserve currency. Australia’s dollar dropped for a third day after the nation’s central bank lowered its forecasts for growth and inflation.
“The Greek deal wasn’t finalized overnight so that is a negative,” said Geoffrey Kendrick, head of European currency strategy at Nomura International in London. “We’re seeing the euro paring its gains for the week and I would expect it to come off a bit further today, maybe to sub $1.32.”
The euro fell 0.1 percent to $1.3271 at 9:07 a.m. London time, paring its weekly advance to 0.8 percent. It reached $1.3322 yesterday, the strongest level since Dec. 12. Europe’s shared currency weakened 0.2 percent to 103 yen. The dollar was little changed at 77.63 yen. It earlier advanced to 77.75 yen, the strongest level since Jan. 26.
The MSCI Asia Pacific Index (MXAP) fell 1.4 percent, paring its eighth weekly advance. The Stoxx Europe 600 Index dipped 0.5 percent.
Europe’s 17-nation currency has lost 3 percent in the past six months as the region’s debt crisis deepened, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar has appreciated 4 percent in the same period.
‘No Disbursement’
The euro snapped a three-day advance against the yen after Greek Finance Minister Evangelos Venizelos said his euro-area counterparts refused to approve a 130 billion-euro aid package because the government fell short of austerity demands.
Greek lawmakers will vote on measures to cut spending this weekend in a ballot that Venizelos said amounts to a decision on membership of the currency union. Another extraordinary assembly of the euro-area ministers was set for Feb. 15.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, was 0.1 percent stronger at 78.67 after touching 78.364 yesterday, the lowest level since Dec. 8.
Australia’s currency slid versus all of its major peers today after the Reserve Bank said it sees the economy expanding 3.5 percent this year, down from its Nov. 4 estimate of 4 percent. Consumer prices will rise 3 percent in the year through to the fourth quarter, less than a previous prediction of 3.25 percent, the RBA said in its quarterly monetary policy statement released today.
The so-called Aussie dollar weakened 0.9 percent to $1.0689 and retreated 1 percent to 82.967 yen.
Currency Volatility
Implied volatility of three-month options for Group of Seven currencies declined to 9.89 percent, after earlier falling to 9.79 percent, the lowest since August 2008. It was as high as 10.13 percent yesterday. A decrease makes investments in currencies with higher benchmark lending rates more attractive as the risk in such trades is that market moves will erase profits.
Declining volatility in currency markets “tells you that you should be getting into the higher-yielding currencies but then the question, of course, is how long will this last for?” said Adrian Foster, head of financial-markets research for Asia at Rabobank Groep NV in Hong Kong. “Once people start observing it, more speculative money starts to pile in on the carry trade and sows the seed of its own destruction.”
To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at
