Euro Gains Versus Yen as EU Reaches Greek Aid Deal; Pound Slides

Bloomberg: The euro strengthened for a third day against the yen as European Union finance ministers meet in Brussels a day after agreeing to release 3 billion euros ($3.9 billion) of aid for Greece.

The dollar and yen weakened against most other major peers as Federal Reserve Chairman Ben S. Bernanke prepares to speak tomorrow and Bank of Japan officials are set to begin a two-day meeting. The Swiss franc weakened versus all but one of its 16 leading counterparts. The pound fell, approaching the weakest level in three years versus the dollar, after U.K. manufacturing unexpectedly shrank, casting doubt on the strength of the nation’s recovery.

“What we’re seeing now is just a natural rebound,” said Neil Mellor, a currency strategist at Bank of New York Mellon in London. “We’re approaching summer markets so there’s a degree of saying that’s done, the Greek issue is resolved, we can perhaps stop selling the euro quite so heavily and take a degree of respite.”

The euro strengthened 0.1 percent to 130.12 yen at 7:34 a.m. New York time. It has fallen from 133.80 yen, this year’s high, posted on May 22. The 17-nation currency was little changed at $1.2869 after climbing to $1.3711 on Feb. 1. The dollar rose 0.2 percent to 101.13 yen.

Greece will get 2.5 billion euros this month and the rest in October, as long as Prime Minister Antonis Samaras’s tottering coalition delivers on economic reforms and spending cuts. Greece can also count on recouping 2 billion euros in central-bank profits on Greek bonds and on 1.8 billion euros from the International Monetary Fund.

Swiss Franc

The Swiss franc fell as investors sought higher-yielding assets. It depreciated 0.3 percent to 96.66 centimes per dollar after reaching 96.85 centimes, its weakest since May 29. It slipped 0.3 percent to 1.2439 per euro.

“We’re seeing a slightly more optimistic risk tone and so that’s probably also providing a backdrop which is not particularly conducive to buying Swiss” francs, said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “The bailout progress for Greece continues and I think that has taken some of the risk out of the” currency cross.

The euro has gained 4.5 percent this year, the second-best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has risen 7.4 percent, while the yen is the biggest loser, dropping 9.4 percent.

Macro Dynamic

“The macro dynamic and monetary policy dynamic are still suggesting yen weakness is the game to be playing,” Sacha Tihanyi, a currency strategist at Scotiabank in Hong Kong, said in a Bloomberg Television interview. “We’re still looking for 105 by the end of this year,” Tihanyi said in reference to the dollar-yen exchange rate.

Bank of Japan Governor Haruhiko Kuroda and his fellow policy makers will discuss upgrading their assessment of Japan’s economy by using the word “recover” for the first time in more than two years, people familiar with the central bank’s discussions said.

Norddeutsche Landesbank, Macquarie Bank Ltd. and Banco Santander SA are all calling for the yen to tumble to 110 per dollar by year-end. The lenders are among the five top-ranked forecasters for the currency last quarter, according to data compiled by Bloomberg. The median estimate of economists in a Bloomberg survey calls for 105 by Dec. 31.

U.K. Production

U.K. factory production fell 0.8 percent from April, when it declined 0.2 percent, the Office for National Statistics said today in London. The median forecast of 25 economists in a Bloomberg News survey was a 0.4 percent increase.

“We’ve had some fairly robust data recently so for this to be negative is a little bit of a punch in the stomach for the pound,” said Lee McDarby, head of dealing on the corporate and institutional treasury desk at Investec Bank Plc in London. “It’s not looking particularly great for sterling right now.”

The pound slipped 0.5 percent to $1.4872 after dropping to $1.4832 on March 12, the lowest since June 23, 2010. The U.K. currency depreciated 0.5 percent to 86.52 pence per euro and touched 86.69 pence, the weakest level since March 14.

reporter on this story: Lucy Meakin in London