FOREX-Euro boosted by China easing, Greek deal expected

Mon Feb 20, 2012 6:07am EST

Related Topics

* Single currency rises before euro zone ministers' meeting
    * Deal boost to euro seen limited by Greek economy risks
    * China cut required reserve ratio by 50 bps at weekend

    By Nia Williams	
    LONDON, Feb 20 (Reuters) - The euro rose on Monday
after China's surprise move to ease monetary policy to stimulate
growth and on mounting expectations that euro zone policymakers
would finally approve Greece's second bailout, averting a messy
default.	
    Analysts said gains would be limited until the 130 billion
euro bailout deal was signed off by euro zone finance ministers
later on Monday, given numerous delays in recent weeks. Although
financing gaps in Greece's debt reduction plans remained, a euro
zone official said they were not big enough to risk derailing
the process. 	
    The euro was seen as likely to rally in the immediate wake
of a deal being signed, although it could run out of steam near
its 2012 high around $1.3322 as the package was not expected to
resolve Greece's underlying economic problems.	
    The single currency was up 0.7 percent at a one-week
high of $1.3248. Riskier assets, including stocks and commodity
currencies, also rallied after China's central bank cut reserve
requirements by 50 basis points over the weekend.
 	
    Trade was expected to be subdued with U.S. markets closed
for a public holiday, potentially exaggerating any price moves.	
    "News about China reserve requirements and once again hopes
that they (the euro zone) will reach an agreement with Greece
are giving a positive opening to markets," said Niels
Christensen, FX strategist at Nordea.	
    "I think we will see a rally, but not a strong rally because
we've been trading this topic for a long time. Even if we get a
deal there are still issues about restructuring and how the
portfolio of Greek bonds at the ECB will be dealt with."	
    One of the terms of the deal will be a debt swap with
private holders of Greek government bonds. The European Central
Bank (ECB) is weighing up whether to allow Greek bonds held by
national euro zone central banks' to be subject to the same
writedowns as those of private investors. 	
    Although strategists saw a euro rally as limited, data from
the Commodity Futures Trading Commission released on Friday
showed euro shorts rose in the week to Feb. 14, suggesting scope
for short covering.  	
	
    RISK RALLY	
    The euro also hit a three-month high of 105.75 yen
 before slipping back to 104.23 yen, up 0.1 percent on
the day. The yen has been under pressure since Japan's central
bank surprised markets by easing monetary policy last week.	
    The dollar jumped to a six-month high of 79.89 yen,
surpassing the October peak around 79.55 scaled after Japanese
authorities intervened in markets to weaken the yen. 	
    But it pared gains to stand at 79.57 yen as short-term
accounts locked in recent profits on the pair after data showed
Japan's January trade deficit was in line with forecasts, though
at a record 1.475 trillion yen. 	
    Analysts said easing by the Bank of Japan and the Bank of
England, which extended its quantitative easing programme this
month, as well as a second injection of cheap funding from the
ECB next week and signs the U.S. Federal would be prepared to
pump more money into the system if needed, meant risk appetite
was picking up on the prospect of more liquidity.	
    "It's a global risk positive outlook as major central banks
are expanding their balance sheets," said Lauren Rosborough,
senior FX strategist at Societe Generale.	
    "People are buying the high-yielders such as the Aussie and
Kiwi and selling the euro, yen and dollar, those economies where
central banks are leaving rates lower for longer."  	
    The biggest beneficiaries of rising risk appetite were
commodity currencies. The Australian dollar jumped to a high of
$1.0817, before steadying at $1.0776, up 0.6 percent on
the day. The New Zealand dollar hit a 5-1/2-month high
of $0.8429.	
    Commonwealth Bank Australia strategists revised up their
Australian dollar forecast, saying it would reach US$1.0700 by
the end of this quarter and US1.0900 by the end of the year.
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