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Euro Declines as Greece Draws in International Monetary Fund

Data Analysis 05:05:50PM Mar 24, 2010 Source:SMM

NEWYORK, Mar. 24  -- The euro weakened to a 10-month low against the dollar after French and German leaders said any aid package for Greece would require help from the International Monetary Fund, denting confidence in the European Union.

The 16-nation currency also fell against the yen and the pound. The Swiss franc traded near a record high against the euro on speculation the Swiss National Bank is abandoning a policy of curbing the currency's gains. The New Zealand dollar declined against 13 of its 16 major counterparts after the current-account deficit widened more than economists estimated. The yen dropped against all 16.

"If Greece goes with the IMF, that says something terrible about the political process within Europe," said Stuart Bennett, a senior foreign-exchange strategist at Credit Agricole Corporate and Investment Bank in London. "This undermines any confidence in the currency." The euro may fall as low as $1.33 by the end of June, and to $1.28 by September, Bennett said.

The euro fell dropped to $1.3391 as of 8:43 a.m. in London, from $1.3499 in New York yesterday, after earlier falling as low as $1.3407, the weakest since May 8. It declined to 121.81 yen from 122.03 yen. The dollar traded at 90.95 yen from 90.40 yen.

Germany and France agreed to back an IMF role in any aid for Greece, a German Finance Ministry official told reporters in Berlin on condition of anonymity. The accord came a week after euro-area finance ministers agreed to a European framework for a bailout. EU leaders begin a two-day summit tomorrow.

Temporary Exit

The euro may decline to $1.28 before the end of April on speculation IMF involvement in the crisis may prompt Greece to withdraw from the euro region temporarily, according to CMC Markets.

"Any IMF-backed deal for Greece may prevent further credit downgrades from the rating agencies but could also imply the Fund would require a more austere economic plan considering that Athens cannot devalue its currency," Ashraf Laidi, chief market strategist at CMC Markets in London, wrote today. "This may raise speculation of a temporary Greece exit from the euro-zone to address the currency issue, which would assault the euro.

German Chancellor Angela Merkel's Christian Democratic Union party expects her to "resist calls to agree" to aid at the summit, CDU parliamentary group finance spokesman Michael Meister said in an interview yesterday. French President Nicolas Sarkozy had backed a European solution. Luxembourg's Jean-Claude Juncker, who heads the group of finance ministers in the euro region, said the EU wouldn't "abandon" Greece.

'Changed Its Stance'

"It looks like Germany has changed its stance in the last couple of days and is now keen to at least have some IMF involvement in any bailout package," said Gareth Berry, a currency strategist in Singapore at UBS AG, the world's second- largest foreign-exchange trader. "The idea there is to make any eventual deal more passable to a domestic audience."

Merkel said on March 22 that Germany would only consider financial aid to Greece as a "last resort" if the country were to face insolvency. Sixty-one percent of Germans are opposed to their government giving money to Greece, the Financial Times reported March 22, citing an FT/Harris poll.

The franc traded near a record high against the euro after strengthening below 1.43 per euro yesterday for the first time, amid speculation the SNB's resistance to currency appreciation is waning. SNB President Philipp Hildebrand repeated yesterday that policy makers are ready to act "decisively" to counter any "excessive" gains.

SNB ‘Manipulator' Fear

"Market perceptions are still strong that SNB may be taking a relaxed stance on foreign-exchange intervention,' said Takashi Kudo, a general manager in Tokyo of market information at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. "This factor and possibly its safe-haven allure are causing the franc to be bought."

The SNB's unwillingness to curb the franc's advance may indicate it's concerned about being labeled a currency manipulator by the U.S., according to RBC Capital Markets. The franc has strengthened 2.5 percent against the euro in the past two weeks.

"The SNB, despite jawboning, is nowhere to be seen," Sue Trinh, a senior currency strategist at RBC in Hong Kong, wrote in a report today. "It is possible the SNB has let the franc go because Switzerland is more at risk of being named a manipulator than China in the April 15, 2010, report on international exchange-rate policy."

New Zealand Dollar

The New Zealand dollar declined versus 12 of the 16 most- traded currencies after the nation posted a current-account deficit of NZ$3.57 billion ($2.52 billion), more than the NZ$1.6 billion forecast by economists surveyed by Bloomberg.

"We've seen a drop in the currency on the back of the current-account numbers," said Mike Jones, a foreign-exchange strategist at Bank of New Zealand Ltd. in Wellington.

New Zealand's economy expanded 0.8 percent in the last three months of 2009, according to a Bloomberg survey before the statistics bureau report tomorrow. That would be the fastest since the fourth quarter of 2007.

The so-called kiwi fell 0.5 percent to 70.40 U.S. cents, and lost 0.2 percent to 63.82 yen.

The dollar rose on speculation improving data in the world's largest economy will allow the Federal Reserve to ends its stimulus measures ahead of major counterparts.

"If expectations about future rate increases rise amid the plethora of positive data, the dollar will strengthen against the yen and euro," said Koji Fukaya, a senior currency strategist in Tokyo at Deutsche Bank AG.

Orders for U.S. durable goods rose for a third month in February, gaining 0.6 percent, according to a Bloomberg News survey ahead of the Commerce Department report today.

Futures on the CME Group Inc. exchange showed a 58 percent chance the Fed will raise its target rate for overnight bank lending by at least a quarter-percentage point by its November meeting, compared with 54 percent odds a week earlier.

 

Euro Declines as Greece Draws in International Monetary Fund

Data Analysis 05:05:50PM Mar 24, 2010 Source:SMM

NEWYORK, Mar. 24  -- The euro weakened to a 10-month low against the dollar after French and German leaders said any aid package for Greece would require help from the International Monetary Fund, denting confidence in the European Union.

The 16-nation currency also fell against the yen and the pound. The Swiss franc traded near a record high against the euro on speculation the Swiss National Bank is abandoning a policy of curbing the currency's gains. The New Zealand dollar declined against 13 of its 16 major counterparts after the current-account deficit widened more than economists estimated. The yen dropped against all 16.

"If Greece goes with the IMF, that says something terrible about the political process within Europe," said Stuart Bennett, a senior foreign-exchange strategist at Credit Agricole Corporate and Investment Bank in London. "This undermines any confidence in the currency." The euro may fall as low as $1.33 by the end of June, and to $1.28 by September, Bennett said.

The euro fell dropped to $1.3391 as of 8:43 a.m. in London, from $1.3499 in New York yesterday, after earlier falling as low as $1.3407, the weakest since May 8. It declined to 121.81 yen from 122.03 yen. The dollar traded at 90.95 yen from 90.40 yen.

Germany and France agreed to back an IMF role in any aid for Greece, a German Finance Ministry official told reporters in Berlin on condition of anonymity. The accord came a week after euro-area finance ministers agreed to a European framework for a bailout. EU leaders begin a two-day summit tomorrow.

Temporary Exit

The euro may decline to $1.28 before the end of April on speculation IMF involvement in the crisis may prompt Greece to withdraw from the euro region temporarily, according to CMC Markets.

"Any IMF-backed deal for Greece may prevent further credit downgrades from the rating agencies but could also imply the Fund would require a more austere economic plan considering that Athens cannot devalue its currency," Ashraf Laidi, chief market strategist at CMC Markets in London, wrote today. "This may raise speculation of a temporary Greece exit from the euro-zone to address the currency issue, which would assault the euro.

German Chancellor Angela Merkel's Christian Democratic Union party expects her to "resist calls to agree" to aid at the summit, CDU parliamentary group finance spokesman Michael Meister said in an interview yesterday. French President Nicolas Sarkozy had backed a European solution. Luxembourg's Jean-Claude Juncker, who heads the group of finance ministers in the euro region, said the EU wouldn't "abandon" Greece.

'Changed Its Stance'

"It looks like Germany has changed its stance in the last couple of days and is now keen to at least have some IMF involvement in any bailout package," said Gareth Berry, a currency strategist in Singapore at UBS AG, the world's second- largest foreign-exchange trader. "The idea there is to make any eventual deal more passable to a domestic audience."

Merkel said on March 22 that Germany would only consider financial aid to Greece as a "last resort" if the country were to face insolvency. Sixty-one percent of Germans are opposed to their government giving money to Greece, the Financial Times reported March 22, citing an FT/Harris poll.

The franc traded near a record high against the euro after strengthening below 1.43 per euro yesterday for the first time, amid speculation the SNB's resistance to currency appreciation is waning. SNB President Philipp Hildebrand repeated yesterday that policy makers are ready to act "decisively" to counter any "excessive" gains.

SNB ‘Manipulator' Fear

"Market perceptions are still strong that SNB may be taking a relaxed stance on foreign-exchange intervention,' said Takashi Kudo, a general manager in Tokyo of market information at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. "This factor and possibly its safe-haven allure are causing the franc to be bought."

The SNB's unwillingness to curb the franc's advance may indicate it's concerned about being labeled a currency manipulator by the U.S., according to RBC Capital Markets. The franc has strengthened 2.5 percent against the euro in the past two weeks.

"The SNB, despite jawboning, is nowhere to be seen," Sue Trinh, a senior currency strategist at RBC in Hong Kong, wrote in a report today. "It is possible the SNB has let the franc go because Switzerland is more at risk of being named a manipulator than China in the April 15, 2010, report on international exchange-rate policy."

New Zealand Dollar

The New Zealand dollar declined versus 12 of the 16 most- traded currencies after the nation posted a current-account deficit of NZ$3.57 billion ($2.52 billion), more than the NZ$1.6 billion forecast by economists surveyed by Bloomberg.

"We've seen a drop in the currency on the back of the current-account numbers," said Mike Jones, a foreign-exchange strategist at Bank of New Zealand Ltd. in Wellington.

New Zealand's economy expanded 0.8 percent in the last three months of 2009, according to a Bloomberg survey before the statistics bureau report tomorrow. That would be the fastest since the fourth quarter of 2007.

The so-called kiwi fell 0.5 percent to 70.40 U.S. cents, and lost 0.2 percent to 63.82 yen.

The dollar rose on speculation improving data in the world's largest economy will allow the Federal Reserve to ends its stimulus measures ahead of major counterparts.

"If expectations about future rate increases rise amid the plethora of positive data, the dollar will strengthen against the yen and euro," said Koji Fukaya, a senior currency strategist in Tokyo at Deutsche Bank AG.

Orders for U.S. durable goods rose for a third month in February, gaining 0.6 percent, according to a Bloomberg News survey ahead of the Commerce Department report today.

Futures on the CME Group Inc. exchange showed a 58 percent chance the Fed will raise its target rate for overnight bank lending by at least a quarter-percentage point by its November meeting, compared with 54 percent odds a week earlier.