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27.02.2012 08:22

Forex: Weekly’s review


On Monday the euro rose against the dollar on speculation European finance ministers will settle their remaining differences over a Greek bailout. The common currency also strengthened versus the yen and the British pound.

Euro-area finance ministers are set to meet in Brussels to seek agreement on a 130 billion-euro Greek bailout. Talks on Greece’s second aid package in two years will aim to reconcile demands made on Greek politicians, a debt swap among private creditors and the role of the European Central Bank.

On Tuesday the euro rose against most of its major counterparts after Greece won a second international bailout and the Greek finance minister said a formal offer for a debt swap will be made by the end of this week. Euro-area finance ministers awarded 130 billion euros ($173 billion) in aid to Greece and reached an accord for greater debt relief from investor representatives in an exchange offer to tide the nation past a bond redemption next month. The euro strengthened after news Greece’s government will introduce legislation to Parliament today that will allow it to enforce losses on bondholders in a writedown of Greek debt, part of a second financing package for the country known as private- sector involvement, or PSI, a government official said.

On Wednesday the yen weakened to a seven-month low against the dollar as the highest yield premium on Treasuries when compared with Japanese debt since August damped the appeal of yen-denominated assets. The yen fell for a fifth day, the most since April, after a report showed sales of previously owned U.S. homes rose to the highest in almost two years, bolstering expectations for growth in North America. It has weakened 3.6 percent since the Bank of Japan on Feb. 14 unexpectedly expanded its asset-purchase program.

The pound declined, dropping to a 10-week low versus the euro, after minutes of this month’s Bank of England meeting showed two policy makers wanted a larger increase in asset purchases than the amount finally agreed. Sterling fell against all but one of its 16 major peers and gilts gained as the minutes revealed Adam Posen and David Miles voted for a 75 billion-pound ($117.6 billion) boost in quantitative easing, instead of the 50 billion pounds supported by the other seven policy makers. Gilts also rose before a report this week forecast to confirm the U.K. economy contracted in the fourth quarter, boosting demand for safer assets.

On Thursday the euro advanced to the strongest level in more than 10 weeks against the dollar as a report showed German business confidence rose to the highest level in seven months amid progress taming the region’s debt crisis. The Munich-based Ifo institute said its business climate index climbed to 109.6 from 108.3 in January, the highest reading since July, amid euro area efforts to prevent a default by Greece. The 17-nation currency pared gains after data forecast that Europe’s economy will shrink in 2012. The euro stayed higher even after the European Commission forecast of a shrinking euro-zone economy in 2012, with Italy and Spain facing sudden crunches as they battle to escape the debt crisis.

On Friday the yen fell to a three-month low against the euro as foreign-exchange volatility declined to its lowest level since August 2008 and signs of global growth prompted demand for higher-yielding currencies. . The yen extended its drop against the dollar to 4.3 percent since the Bank of Japan unexpectedly expanded its asset-purchase program on Feb. 14. The BOJ said this month it would expand its asset-purchase program to 30 trillion yen ($372 billion) from 20 trillion, with 19 trillion yen set aside for government bonds. The central bank also said it will target 1 percent inflation “for the time being.”

The euro strengthened a third day as officials prepared to address the debt crisis when Group of 20 nations meet tomorrow. The euro headed for a seventh-straight advance against the yen, the longest run since January 2010, after demand was boosted by the prospect that G-20 officials meeting this weekend may discuss committing further resources to Europe’s debt crisis.

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