BLBG:Euro Touches 3-Week High After Funding Deal for Greece
The euro touched a three-week high after the currency bloc’s finance ministers reached agreement on Greece’s debt burden and its funding gap.
The 17-nation currency gained against the majority of its 16 main counterparts after euro-area finance chiefs and the International Monetary Fund agreed to cut Greece’s interest rates and gave it more time to pay back rescue loans. The yen dropped versus the dollar after Japanese opposition party leader Shinzo Abe reiterated his call for a different scale of monetary easing.
“We saw the euro pop on the news that a deal has been reached,” said Sue Trinh, a Hong Kong-based senior currency strategist at Royal Bank of Canada. “The actual announcement of the deal has been somewhat of a relief.”
The euro climbed to $1.3009, the strongest since Oct. 31, before trading at $1.2985 as of 2:21 p.m. in Tokyo, 0.1 percent higher than the close in New York yesterday. It gained 0.3 percent to 106.78 yen. The yen weakened 0.1 percent to 82.24 per dollar after earlier rising as much as 0.3 percent.
Ministers from the 17-nation euro bloc started their meeting at 12:30 p.m. in Brussels yesterday, less than a week after an all-night gathering failed to yield agreement and days after a EU summit broke up without a proposed seven-year budget. The updated aid package lowers interest rates on the loans to Greece and sets new debt targets for the country of 124 percent of GDP in 2020 and below 110 percent in 2022.
Greek Agreement
Greek Finance Minister Yannis Stournaras said the decision “keeps Greece in the euro.” IMF Managing Director Christine Lagarde said the nation will get an extra 15 years to repay loans.
“The agreement on Greece has been well received by markets,” said Daisuke Karakama, a market economist in Tokyo at Mizuho Corporate Bank Ltd. “The momentum in the euro’s rebound on back of positive news out of Europe seems subdued, which suggests that the market is still quite cautious.”
The euro has fallen 2.2 percent this year, the worst performer after the yen and dollar, according to Bloomberg Correlation-Weighted Indexes. The yen has weakened 9.4 percent, while the greenback has lost 2.4 percent.
The greenback will probably fall to 81.49 yen, the 23.6 percent retracement of the currency’s climb from the Sept. 13 low of 77.13 to the Nov. 22 high of 82.84 on the Fibonacci chart, according to Callum Henderson, Singapore-based global head of currency research at Standard Chartered Plc. The U.S. currency last reached that level on Nov. 20.
The 14-day relative strength index for the dollar against the yen was at 68, near the 70 level that some traders see as a sign an asset has advanced too far and is about to change direction.
Japan’s Election
Japanese Prime Minister Yoshihiko Noda, whose ruling Democratic Party of Japan trails in opinion polls, and Abe will face each other in a debate to be broadcast over the Internet on Nov. 29. Abe today called for inflation target discussions with the Bank of Japan. (8301) He said bold monetary easing will correct the yen’s strength. The nation will hold elections on Dec. 16 for the lower house of parliament.
Abe, a former prime minister and the head of the Liberal Democratic Party, has called for “unlimited” provisions of cash by the central bank until inflation reaches as high as 3 percent. Hiromasa Yonekura, chairman of Keidanren, Japan’s biggest business lobby, told reporters that monetary policy that can been seen in markets as a measure to finance a government deficit should be avoided, according to a statement dated yesterday.
“Market participants, especially those overseas, are becoming very sensitive to yen-negative headlines,” said Masakazu Sato, a Tokyo-based foreign-exchange adviser at Gaitame Online Co.“Abe’s policy call is likely to remain as a lesson for the new government and their easing stance probably won’t change.”
To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net
To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net
