Dollar, Yen Fall Amid Signs Europe Tackling Crisis; Real Climbs

The dollar weakened today against higher yielding currencies and signs that European leaders are taking steps to control their debt crisis. With the dollar falling, commodities and stocks jumped up as investors fled to them for safety investments.

January 10, 2012, 3:26 PM EST
By Allison Bennett
Business Week

Jan. 10 (Bloomberg) -- The dollar and yen weakened against higher-yielding currencies as Germany’s chancellor meets with the International Monetary Fund’s managing director amid signs European leaders are taking steps to end the debt crisis.

The U.S. currency slid the most versus Brazil’s real and New Zealand’s dollar as stocks and commodities advanced amid bets the Peoples Bank of China may move to spur growth. Implied volatility for currencies of advanced economies fell to a six- month low. The euro gained versus the dollar on speculation investors pared wagers the 17-nation currency will weaken.

“The Chinese have seen stocks get a good bounce,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. European officials this week “are discussing existing plans, and so the market knows there is a not significant headline risk from these meetings,” he said.

The dollar fell 0.2 percent to $1.2790 per euro at 3:01 p.m. in New York after weakening 0.4 percent yesterday. The yen declined 0.2 percent to 98.25 per euro. The dollar was little changed at 76.81 yen.

The implied volatility of three-month options for Group of Seven currencies fell to 10.6 percent, according to a JPMorgan Chase & Co. index, the lowest level on a closing basis since July 8. Reduced volatility indicates less probability of currency fluctuations that may erode profit on investments in higher-yielding assets.

Speculation on China

Stocks and commodities rallied as data showed China’s import growth fell in December to a two-year low, bolstering speculation policy makers will increase last month’s cut in banks’ reserve-requirement ratio to boost the economy. The Standard & Poor’s GSCI Index of 24 raw materials climbed 0.8 percent, and the S&P 500 Index of equities advanced 1 percent.

Brazil’s real gained 1.9 percent to 1.7995 per dollar and touched 1.7950, its strongest level in a month. New Zealand’s currency, nicknamed the kiwi, rose 0.9 percent to 79.42 U.S. cents, and Australia’s dollar advanced 0.8 percent to $1.0323. China is the biggest trade partner of Brazil and Australia and the second-largest destination for New Zealand’s exports.

“If you have more easing, it’s more supportive of credit generation and investment, so you’re going to help support commodities and raw materials,” said Mary Nicola, a New York- based currency strategist at BNP Parisbas SA. “The euro is kind of tagging on with the risk-on environment, and its gains have nothing to do with the European fundamental outlook.”

Dollar Index

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, fell 0.2 percent to 80.813 after rising to 81.503 yesterday, the highest since September 2010.

German Chancellor Angela Merkel said Greece would be the focus of talks at a meeting today with IMF Managing Director Christine Lagarde. The session was scheduled to begin at 8 p.m. in Berlin, 2 p.m. New York time. “We want Greece to stay in the euro,” Merkel said in a joint press conference with French President Nicolas Sarkozy yesterday after they met. Italian Prime Minister Mario Monti will visit Berlin tomorrow.

Futures traders increased their bets that the euro will decline against the dollar -- so-called net shorts -- to a record high earlier this month.

“When you have speculative positioning so extreme against the euro, you’re going to be exposed to these sorts of corrections higher in euro-dollar,” said Tom Levinson, a currency strategist at ING Groep NV, by phone today from London. “The market is never going to get tired of thinking something exciting and positive might come out of a meeting between two leading politicians. Our general view is that that’s up against what’s going to be a pretty tough few months for the euro.”

Hungarian Forint

ING has a $1.20 forecast for the euro by the end of the first quarter.

The Hungarian forint gained as Hungary’s chief negotiator for a bailout, Tamas Fellegi, traveled to Washington to prepare official negotiations with the IMF on a rescue package.

Hungary’s currency advanced 1.5 percent to 310.89 per euro after weakening last week to a record 324.24.

The euro has declined 1.5 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar is little changed, and the yen has advanced 0.2 percent.

The franc touched a three-month high amid speculation traders will challenge the central bank’s efforts to limit the currency’s rally following the resignation of Chairman Philipp Hildebrand.

Successor to Hildebrand

The Swiss National Bank’s supervisory board was holding an extraordinary meeting in Zurich today. A successor to Hildebrand will be named as soon as possible, Hansueli Raggenbass, head of the council, said in an interview.

The resignation and growth in the SNB’s reserves may strengthen the view that it will be “harder for the SNB to defend the peg if the situation in the euro zone deteriorates,” Valentin Marinov, a foreign-exchange strategist at Citigroup Inc. in London, wrote in a note to clients. “We doubt that the peg will be threatened, but we suspect that euro-franc could trade very close to the 1.20 mark.”

The franc was little changed at 1.2131 per euro after earlier gaining to 1.2107, the strongest since Sept. 20.

--With assistance from Chris Fournier in Halifax, Nova Scotia, and Keith Jenkins in London. Editors: Greg Storey, Kenneth Pringle

To contact the reporter on this story: Allison Bennett in New York at

To contact the editor responsible for this story: Dave Liedtka at

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