Friday, April 30, 2010

Yen Weakens, Euro Climbs on Greece Talks, Outlook for Growth

By Matthew Brown and Candice Zachariahs

April 30 (Bloomberg) -- The yen fell against higher- yielding currencies and the euro climbed on signs Greece may reach an agreement on budget cuts needed to win a potential $159 billion bailout.

The euro strengthened for a third day versus the dollar and the yen after European Commission President Jose Barroso said he is confident a rescue package for Greece will be completed “in days.” Japan’s currency tumbled toward the lowest level since September 2008 against Australia’s dollar as stocks gained. The pound rose versus the yen as U.K. opposition leader David Cameron won a television debate, boosting the likelihood of there being an outright winner in next week’s election.

“It looks like we’re going to get an announcement early next week, which is bringing a bit of optimism that’s hurting the yen and giving the euro some support,” said Ian Stannard, a foreign-exchange strategist at BNP Paribas SA in London. “Upside for the euro will be short-lived, because whatever aid package is agreed, the underlying problems remain.”

The yen depreciated 0.9 percent to 87.94 per Australian dollar as of 6.30 a.m. in New York, after earlier reaching 88.03, the weakest level since September 2008. Japan’s currency declined 1.1 percent to 11.7234 won.

The yen weakened to 125.89 per euro, from 124.45 yesterday. The euro advanced to $1.3315, from $1.3233, paring this week’s loss to 0.5 percent. The dollar increased to 94.55 yen, from 94.03, poised for a second monthly gain.

The euro fell 1.5 percent against the dollar in April as Greece struggled to contain its deficit and its debt was downgraded to junk status by Standard & Poor’s. That marks a fifth monthly decline, the longest stretch since November 2008.

‘Austerity’ Package

The International Monetary Fund told German lawmakers this week Greece may need as much as 120 billion euros ($159 billion). The nation has agreed on the outlines for an “austerity” package of as much as 24 billion euros in return for a loan from the European Union and the IMF, the Financial Times said, citing people familiar with the talks.

The EU, IMF and the European Central Bank are making “rapid progress” on a rescue package, Barroso said today at a briefing in Beijing. Debt restructuring is not a part of the package, he said. Barroso also said he has “no doubts” about the solidity of the euro.

“Greece looks like it’ll be rescued, suggesting the worst is over at this stage,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. Ltd. in Tokyo. “This is leading to a short-term relief rally in the euro.”

‘Risk Appetite’

The EU’s statistics office in Luxembourg said consumer prices in the euro area rose 1.5 percent in April from a year earlier, in line with the average of analyst estimates in a Bloomberg survey.

“If you can get the focus off of Greece, the incoming economic indicators for the euro zone actually look pretty good,” said Ray Attrill, global research director at Forecast Ltd. in Sydney. “The dollar and yen have benefited most from the loss of risk appetite, so any reversal of that and you’d expect to see the dollar and yen being the weaker currencies.”

The U.S. Commerce Department will say today gross domestic product expanded at a 3.3 percent annual pace from January through March, a Bloomberg survey showed. Korean factory output rose a greater-than-estimate 22.1 percent from a year earlier, according to a report from the statistics office today.

The MSCI World Index of shares rose 0.4 percent, while the Stoxx Europe 600 Index added 0.3 percent.

Australian Dollar

Australia’s dollar was set for a second weekly advance against the greenback before a Reserve Bank of Australia meeting on May 4, where policy makers will increase the benchmark interest rate, a survey of economists indicated.

“The mess in Greece is likely to settle down gradually,” said Morio Okayasu, chief analyst in Tokyo at Japan Co., a unit of the online currency trading firm Gain Capital in Bedminster, New Jersey. “An improvement in risk appetite will encourage investors to chase higher-yielding currencies such as Australia’s dollar.”

Reserve Bank Governor Glenn Stevens has raised rates five times over the past six meetings to 4.25 percent, making Australian assets a favorite among those seeking higher-yielding investments using low-cost funds. Benchmark rates are 0.1 percent in Japan and as low as zero in the U.S.

The Bank of Japan kept interest rates near zero today and said it will examine ways to help strengthen the economic recovery. The central bank’s decision came hours after government figures showed the export-led recovery is spreading, even as deflation persists.

Ichimoku Cloud

The U.S. dollar may extend this month’s gains against the yen to reach the strongest since August 2008 should it close above 95 yen, rising through the top of a weekly ichimoku cloud and its 21-month average, said Barclays Capital.

The dollar “is testing its weekly cloud cap” at 94.30 yen, strategists led by Jordan Kotick, the New York-based head of technical strategy, wrote in an e-mailed note. The dollar’s 21-month moving average is at 94.76 yen, Bloomberg data show.

“Both these trend-following techniques have a remarkably good track record of calling one- to three-year U.S. dollar moves over the last 25 years,” the analysts wrote. A close above 95 yen “would target 110.”

The greenback last traded above 110 yen on Aug. 25, 2008.

Conservative leader Cameron won the final debate of the U.K. election campaign, three instant-reaction polls showed, gaining momentum in his bid to oust Prime Minister Gordon Brown in the May 6 vote.

Cameron’s central message in the 90-minute debate in Birmingham, central England, was that 13 years of Labour Party rule had left Britain struggling to recover from its longest recession and the highest unemployment in 16 years.

The pound climbed 0.6 percent to 144.93 yen. It was little changed at $1.5323, after earlier rising as much as 0.5 percent.

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