Euro Drops Versus Dollar, Yen Amid Concern About Greek Debt-Swap Outcome

23.01.2012 13:12

Bloomberg: The euro fell for a second day on concern that Greece will struggle to reach an agreement with creditors to ease its debt burden.
The 17-nation currency weakened before European Union finance ministers meet in Brussels today to discuss a Greek debt swap, new budget rules and a financial firewall to protect indebted states. The Australian dollar snapped an advance from last week after a report showed producer-price inflation is slowing, providing scope for the Reserve Bank of Australia to implement a third consecutive interest-rate cut.
“There is some nervousness around the negotiations that are happening between Greece and its private-sector creditors, with mixed reports,” said Besa Deda, chief economist at St. George Bank Ltd. in Sydney. “There’s a bit of fresh uncertainty around that and that’s encouraging profit-taking on the euro.”
The euro fell 0.3 percent to $1.2896 as of 2:47 p.m. in Tokyo from $1.2931 in New York on Jan. 20, when it reached $1.2986, the highest level since Jan. 4. The common currency declined 0.3 percent to 99.35 yen. The dollar was little changed at 77.04 yen.
Financial markets in China, Hong Kong, Singapore, South Korea, Taiwan, Indonesia and Malaysia are shut for the Lunar New Year holiday today.
Bondholders negotiating a debt swap with Greece have made their “maximum” offer, leaving it to the EU and International Monetary Fund to decide whether to accept the deal, said Charles Dallara, who’s representing private creditors in the talks.
Greece Debt Talks
European officials and Greece’s private bondholders agreed in October to implement a 50 percent cut in the face value of more than 200 billion euros ($258 billion) of Greek debt by voluntarily exchanging outstanding bonds for new securities, with a goal of reducing Greece’s borrowings to 120 percent of gross domestic product by 2020.
The parties were nearing an agreement under which old bonds would be swapped for new securities, with coupons averaging between 4 percent and 4.5 percent, according to a person with knowledge of the discussions three days ago. Germany and the IMF are now insisting on an agreement closer to 3 percent, the New York Times cited officials involved as saying.
EU governments negotiating for a new rulebook on fiscal policy are hewing to an agenda championed by German Chancellor Angela Merkel and the European Central Bank. The latest draft of the fiscal pact bows to ECB President Mario Draghi’s call for governments to honor their commitment on spending discipline to restore credibility.
‘Correction Mechanism’
The proposed treaty will require a centralized “correction mechanism” to be triggered automatically in cases of “significant” deviations from a target structural deficit of 0.5 percent of gross domestic product, according to a draft dated Jan. 19 obtained by Bloomberg News. Reflecting German demands, countries would have to enact “binding and permanent” balanced-budget rules.
Futures traders last week raised bets to a record that the euro would decline against the dollar. The difference between wagers that the shared currency will fall versus those that it will rise -- so-called net shorts -- surged to 160,030 in the week ended Jan. 17, data from the Commodity Futures Trading Commission showed on Jan. 20.
‘Undermine Sentiment’
“It is possible that discussions about the exceptions from the euro area fiscal compact will undermine sentiment further if they suggest that the agreement is not as watertight as initially anticipated,” strategists at Barclays Capital, including Guillermo Felices, wrote in a note today. “In this environment we expect the euro to move sideways against the dollar, as the amount of event risk makes investors uncomfortable about increasing shorts.”
The euro has weakened 4.1 percent in the past six months, according to Bloomberg Correlation-Weighted Indexes. The yen rose 8.2 percent, the best performance among the 10 developed- nation currencies tracked by the gauges. The dollar strengthened 7.7 percent.
The so-called Aussie failed to extend gains from last week as the statistics bureau said Australia’s producer price index advanced 0.3 percent in the October-to-December period from the prior quarter, when it gained 0.6 percent.
Consumer prices are forecast to have climbed 0.2 percent last quarter from the earlier period, ahead of a separate report on Jan. 25.
Australia Prices
Australia’s dollar was little changed at $1.0488 after earlier falling as much as 0.3 percent. The currency increased 1.6 percent in the week ended Jan. 20.
Demand for the dollar and yen was limited before U.S. data that may add to signs of recovery in the world’s largest economy, curbing demand for safer assets.
The Federal Reserve Bank of Richmond may say the overall business activity index for the central-Atlantic region climbed to 7 in January from 3 last month, according to the median estimate of economists in a Bloomberg survey before tomorrow’s report. U.S. GDP probably rose at a 3 percent annual rate in the September-December period after expanding 1.8 percent in the prior quarter, a separate poll showed ahead of the Commerce Department’s Jan. 27 release.
reporter on this story: Candice Zachariahs in Sydney ,Monami Yui in Tokyo