WSJ:WORLD FOREX: Euro Firms Before Greek Debt Deal, China Speculation
-- The euro firms vs the dollar and yen on talk that China may take additional easing
-- The euro's gains are limited before Greek debt swap deal deadline, but outcome is priced in by the market
-- The yen eases after Japan posts record current account deficit
By Tatsuo Ito
Of DOW JONES NEWSWIRES
TOKYO (Dow Jones)-- The euro firmed versus the dollar and the yen in Asia Thursday on market speculation that China may take additional easing steps by cutting the reserve requirement ratio for commercial banks to prop up its economy.
Such speculation is "supporting risk-on sentiment and is prompting buying of the euro," said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo.
At 0450GMT, the euro was at $1.3170 from $1.3150 in late New York on Wednesday, according to EBS via CQG. The common currency was at Y107.00 from Y106.62. The euro's gain, however, proved short-lived ahead of the outcome of Greece's debt-swap deal deadline later in the day, although traders said that the outcome has already been somewhat factored into the market.
"The market will probably fluctuate in response to the outcome, but the event itself won't set off a new trend for the euro," said Kuniyuki Hirai, foreign exchange trading department manager at Bank of Tokyo-Mitsubishi UFJ.
Optimism grew about the Greek swap debt deal overnight but uncertainty remains over whether Greece can secure the 90% voluntary participation it requires before having to use so-called collective action clauses to force reluctant bondholders to join in.
"Even if (the CAC) is invoked, I assume that European banks with Greek bonds have already set aside reserves for their losses. Thus, the impact should be limited," BTMU's Hirai added.
Credit Agricole's Saito agreed. "An orderly default of Greece has been already priced in by the market. So it's unlikely that contagion concerns will immediately spread to Spain and Italy as the financial market regains its composure after two long-term fund supply operations (by the ECB)."
The successful completion of the debt swap is vital for Greece to obtain a second bailout package from the European Union and the International Monetary Fund.
Meanwhile, the yen eased against major currencies after Japan posted a record Y437.3 billion current account deficit in January as soaring energy imports and falls in exports took a toll. The figure came in larger than the expected Y322.4 billion deficit.
"The deficit was caused by seasonal factors, but it's too early to say that it is one-off event, BTMU's Hirai added. "As a weak yen trend has already kicked in, there is the chance that the dollar may eventually test Y85 once the Y82 mark is breached," Hirai added.
The dollar was at Y81.26 from Y81.08 late Wednesday. The U.K. pound traded at $1.5749 from $1.5741. The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at 79.625 from 79.684.
Interbank Foreign Exchange Rates At 23:50 EST / 0450 GMT
