FOREX-Euro rises broadly on Greece aid optimism, German data

Fri Nov 23, 2012 10:27am EST

Related Topics

* Greece's lenders near agreement to release further aid

* Euro hits 3-week high vs dollar, 7-month high vs yen

* Against dollar, yen comes off more than 7-month lows

By Wanfeng Zhou

NEW YORK, Nov 23 (Reuters) - The euro rose to a three-week high against the dollar on Friday, heading for its second straight week of gains, on hopes that Greece's lenders were nearing an agreement to release further aid to help the debt-stricken country.

A rise in German business morale also boosted the euro, although analysts said any euro strength should be limited given the bleak economic outlook for the euro zone as a whole and expectations that the European Central Bank will have to ease policy further.

Greece said the International Monetary Fund had relaxed its debt-cutting target for the country, suggesting lenders were closer to a deal for a vital aid tranche to be disbursed. But other sources involved in the talks cautioned the funding gap was far bigger than Greece has suggested.

"While we wouldn't want to understate the challenges of reaching agreement on Greece, news reports have described some of the remaining obstacles as technical and legal, and thus the hurdles to a deal do not seem insurmountable," said Nick Bennenbroek, head of currency strategy at Wells Fargo in New York.

The euro rose as high as $1.2943 on Reuters data, breaking above resistance at $1.2910, its 55-day moving average. It was last trading at $1.2941, up 0.5 percent on the day.

It also hit a seven-month high of 106.73 yen and was last at 106.65 yen, up 0.4 percent.

Bennenbroek new reports suggesting euro zone finance ministers will hold a teleconference on Saturday ahead of their meeting on Monday, with the aim of speeding the process of finding a financing solution for Greece, also lifted sentiment.

The euro has gained 2 percent against the dollar in the past two weeks as yields on Greek bonds fell on expectations that euro zone ministers should be able to sign off on another tranche of aid for Greece on Monday.

"The market is getting a bit confident that a Greek deal will be struck. This will remove one of the near-term uncertainties in the euro zone and some of the short euro bets will be squeezed as a result. But I do not see the euro rising much beyond $1.30," RBS currency strategist Paul Robson said.

German business morale surprised with its first rise in seven months in November. The Munich-based Ifo think tank said its business climate index rose to 101.4 from 100.0 in October, far surpassing even the highest estimate in a Reuters poll.

"The IFO was a bit of surprise, but these are levels which we saw back in October and not really a turn in sentiment," Stuart Frost, fund manager at RWC Partners. "We expect the euro's gains to fizzle out."

YEN CARRY TRADES?

The dollar fell 0.1 percent to 82.39 yen, pulling away from Thursday's high of 82.82 yen, its strongest level since early April.

The dollar has climbed nearly 4 percent against the yen in the last two weeks, with the yen weakened by expectations that a likely new Japanese government after an election scheduled for December would push the Bank of Japan to implement more drastic monetary stimulus.

Shinzo Abe, the leader of Japan's opposition Liberal Democratic Party, which is tipped to win the election, has called for measures such as having the BOJ buy bonds issued specifically to fund public works projects and pushing short-term interest rates below zero.

His party's policy platform calls for a 2 percent inflation target, and seeks to ensure that the BOJ will pursue it vigorously with a possible revision to legislation that guarantees the central bank's independence.

In an interview with the Wall Street Journal published on Friday, Abe was also quoted as saying that he would consider postponing sales tax increases agreed in August if the economy remained mired in deflation.

Analysts said loose monetary measures along with lax fiscal policies could keep the yen under pressure and could see yen-funded carry trades return. Under these trades, investors sell the low-interest rate yen to buy more higher-yielding assets.

"Speculation is already growing that the yen will be the funding currency of choice for 2013 carry trades - a view we tend to support," Chris Turner, head of FX strategy at ING, said in a note.

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.