* Markets hopeful of an aid deal for Greece later today
* Resumption of U.S. fiscal cliff talks also eyed
By Philip Baillie
LONDON, Nov 26 The euro retreated from a
seven-month high against the yen on Monday as traders booked
profits on its recent rally, although expectations that Greece
will secure new emergency loans would check losses.
Euro zone finance ministers meet on Monday for a third time
in as many weeks to hammer out a deal to get international
lenders to release aid to Greece in time for debt repayments due
German Chancellor Angela Merkel has said that she was
confident a deal could be reached, while the French finance
minister said on Sunday an agreement was close.
A deal could give the euro a fillip, especially against the
struggling yen which has been under pressure in the past few
weeks on mounting speculation that a new government after next
month's general elections will force the Bank of Japan to ease
monetary policy aggressively.
The euro eased to 106.15 yen, having hit 107.135
yen on trading platform EBS in Asian trade, the single
currency's strongest level since late April. The euro has risen
nearly 4.5 percent in the past two weeks as investors and
speculators added long positions and sold the yen.
Against the dollar, the euro was down 0.2 percent at $1.2955
, having hit $1.2991 on Friday, its highest level since
The dollar was also weaker against the yen at 81.98 yen
, with some investors unwinding their long positions built
in recent weeks. There was talk of persistent buying interest
among hedge funds for dollar/yen call options that expire in
three to six months, suggesting that they are bullish on the
dollar and bearish toward the yen.
"The market has been quite long euro/yen so it is quite
natural that dollar/yen has had a bit of a pullback where
euro/yen has done the same," said Daragh Maher, currency
strategist at HSBC.
"I don't think there is any conviction in selling the euro
as you may have some kind of announcement on Greece, which will
probably see a pop higher."
Expectations of a deal for Greece overshadowed an election
victory for separatists in the Spanish region of Catalonia on
Sunday, albeit failing to get the resounding mandate needed to
push convincingly for a referendum on independence.
The win raised some concerns of a potential negative impact
on the Spanish economy and the country's finances as Catalonia
makes up 20 percent of the economy and provides most tax revenue
to the central government, a potential drag on the euro.
But HSBC's Maher said Greece was the main concern and with
no sign of a referendum on independence in Spain for the next
year at least, the euro was likely to hold on to its recent
EYES ON US FISCAL CLIFF
With the euro ceding some ground, the dollar index
edged off a three-week trough of 80.128 plumbed on Friday and
last stood at 80.255.
Analysts at BNP Paribas said investors' demand for riskier
currencies could continue if a Greek aid deal was finalised and
the United States made progress on its own fiscal problem.
"Although a swift deal is probably too optimistic, we
believe an eventual compromise will be achieved well before the
end of the year," they said of the U.S. fiscal cliff talks,
adding they expected the Federal Reserve to expand its
quantitative easing programme at its December meeting as well.
"(This) combination of positive developments should, in our
view, maintain this risk momentum over the coming weeks."
The White House and Congress are set to resume negotiations
this week to avoid a series of automatic tax hikes and spending
cuts worth $600 billion set for January, which analysts fear
could tip the world's biggest economy into recession.
The growth-linked Australian dollar was trading
steady at $1.0450, not far from a two-month high of $1.0480. The
Canadian dollar was steady against the dollar, with the U.S.
dollar at C$0.9933.