Euro Drops as Greece Uses Collective Action Clauses to Complete Debt Swap

Bloomberg: The euro fell for the first time in three days against the dollar after Greece said it triggered an option compelling investors to take part in its debt restructuring, damping demand for the region’s assets.

The euro fell versus 13 of its 16 major peers before the International Swaps and Derivatives Association’s determinations committee meets to consider a “potential credit event” relating to Greece, following the results of its private-sector involvement plan. The Dollar Index rose as economists said a U.S. report today will show employers hired more than 200,000 workers for a third month, reducing the likelihood the Federal Reserve will start another round of debt purchases.

“The euro has failed to gather any further support from the Greek news,” said Ian Stannard, head of European currency strategy at Morgan Stanley in London. “The market was fully expecting a successful PSI. The rebound we’ve seen in the euro may be running out of steam.”

The euro declined 0.4 percent to $1.3219 at 9:20 a.m. in London after rising 1.2 percent over the previous two days. The common currency dropped 0.2 percent to 108.05 yen. The dollar advanced 0.2 percent to 81.74 yen after rising to 81.89, the highest since May 26.

Greece said 95.7 percent of bondholders would participate in its debt swap after it used an option to force investors into taking part. The government said holders tendered 152 billion euros of Greek-law bonds, or 85.8 percent, in response to the offer to swap their holdings.

Credit Event

The ISDA committee will meet at 1 p.m. London time to determine whether a credit event has occurred, according to a statement posted on ISDA’s website. Euro-region finance ministers meet by teleconference at 2 p.m. Brussels time to decide whether the swap is successful enough to warrant going ahead with a 130 billion-euro bailout package for Greece.

“The focus now is what the ISDA will have to say,” said Daisuke Karakama, a market economist at Mizuho Corporate Bank Ltd. in Tokyo. “It appears that the activation of collective action clauses may be considered as an event” that triggers Greek credit-default swaps.

The dollar climbed versus all but two of its 16 major counterparts on speculation today’s payrolls report will reduce the likelihood that the Federal Reserve will embark on a third round of quantitative easing to cap borrowing costs.

Employers in the world’s largest economy added 210,000 jobs in February, after hiring 243,000 the previous month, according to the median estimate of economists surveyed by Bloomberg before today’s report.

‘Positive’ for Dollar

A good payrolls outcome “may be positive for the dollar, especially against the yen,” Morgan Stanley’s Stannard said. “The market is expecting a good number, so it is, to a certain extent, priced in.”

The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the U.S. currency against those of six major trading partners, gained 0.3 percent to 79.386.

The yen weakened to a nine-month low against the dollar on speculation a global economy recovery will sap demand for the relative safety of Japan’s currency.

The yen has dropped 6.7 percent in the past three months, the worst performer among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar fell 1.2 percent, and euro slid 2.6 percent.

reporters on this story: Masaki Kondo in Singapore;Keith Jenkins in London