By Ben Levisohn and Paul Dobson
April 12 (Bloomberg) -- The euro advanced the most in seven months versus the dollar after Europe offered Greece a rescue package worth as much as 45 billion euros ($61 billion) at below-market interest rates.
The common currency strengthened against all its major counterparts as yields on Greek sovereign bonds fell on reduced speculation the nation will default. Australia’s dollar dropped from the highest level since November versus the greenback on evidence the nation’s housing market may weaken.
“The deal has quelled any notion that Greece would default on its debt,” said Boris Schlossberg, director of currency research at the online currency trader GFT Forex in New York. “It pacified things a bit, and the euro gapped open in Asia and held on to its gains in Europe”.
The euro increased as much as 1.4 percent, matching an intraday rally on Sept. 8, before trading at $1.3586 at 8:29 a.m. in New York, compared with $1.35 on April 9. The euro touched $1.3692, the highest level since March 18, and appreciated 0.9 percent to 126.93 yen, from 125.79. The dollar rose 0.3 percent to 93.50 yen, from 93.18.
After Greek borrowing costs surged to an 11-year high, euro-region finance ministers said they would offer as much as 30 billion euros in three-year loans in 2010 at about 5 percent interest. Another 15 billion euros would come from the International Monetary Fund. The three-year Greek bond yield fell 0.81 percentage point to 6.17 percent today.
Euro Net Shorts
Futures traders decreased bets that the euro will fall against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission showed last week.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 67,223 on April 6, compared with net shorts of 85,326 a week earlier.
The euro’s gains may prove to be temporary because the region’s economic recovery is slower than that of the U.S., Derek Halpenny, European head of currency research at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, wrote in an investor note.
“The euro is now undergoing a relief rally, but the financial package does not change the medium-term outlook, which is that the euro zone is likely to underperform other developed economies,” Halpenny wrote. “That is set to keep the euro on a downward trend through the remainder of 2010”.
The euro will fall to $1.33 by the end of the year, according to the median estimate of 39 analyst forecasts compiled by Bloomberg News.
Stronger Won
The won rose for a second day against the dollar as the Bank of Korea said gross domestic product will expand this year at the fastest pace since 2006. The economy will grow 5.2 percent in 2010, the central bank said today, raising its outlook from a December forecast of 4.6 percent. The currency rose 0.4 percent to 1,114.13 and touched 1,111.38, the most since September 2008.
Australia’s dollar fell for the first time in three days as the nation’s home-loan approvals fell in February more than economists forecast, signaling five interest-rate increases in six central bank meetings may be curbing demand. New Zealand’s currency retreated as the nation’s house prices declined in March for the first time in 10 months.
Australia’s currency weakened 0.5 percent to 92.83 U.S. cents after touching 93.89 cents, the highest since Nov. 16. New Zealand’s dollar decreased 0.6 percent to 71.52 U.S. cents.
‘Perception of Risk’
Trading in currency options shows that emerging economies have become safer relative to developed nations than at any time in almost two years.
“The global perception of risk is changing,” said Jerome Booth, who helps manage $32 billion in emerging-market assets as the head of research at Ashmore Investment Management Ltd. in London. “Where you want to be is non-leveraged places, and that means anything in emerging-markets. This is a start of a trend. The rally in emerging-markets has barely started yet.”
Indonesia’s rupiah strengthened beyond 9,000 against the dollar for the first time since July 2007. The currency gained 0.1 percent to 9,020 per dollar after reaching 8,997 as signs Greece’s fiscal crisis is easing boosted demand for higher- yielding assets.
Bloomberg
