Fisher Capital Management Investment Solutions: Euro Climbs to Highest in Three Weeks on Optimism for Greek Aid; Yen

Drops

http://www.bloomberg.com/news/2011-05-30/euro-rises-to-three-week-highon-optimism-germany-to-support-new-greek-aid.html By Catarina Saraiva - May 31, 2011 2:18 PM PT The euro rose to a three-week high against the dollar on speculation European officials will approve additional aid to Greece next month, dimming prospects for a sovereign-debt restructuring. The shared currency pared its first monthly loss since November after Luxembourg Prime Minister Jean-Claude Juncker said the regions leaders will decide on a new aid package by the end of June and have ruled out a total restructuring of Greeces debt. Currencies of commodity-exporting countries climbed as investors sought higher-yielding assets. Euro strength is back on further Greece solutions, said Fabian Eliasson, head of U.S. currency sales at Mizuho Financial Group Inc. in New York. For now, markets are reacting positively on it, because it solves the issue for today. The euro rose 0.8 percent to $1.4396 at 5 p.m. in New York, after earlier reaching $1.4424, the strongest since May 9. The euro dropped 2.8 percent this month versus the greenback. It gained 1.5 percent to 117.37 yen, trimming its first monthly loss this year to 2.4 percent. Japans currency weakened 0.7 percent to 81.52 per dollar. The yen pared earlier losses versus the dollar as a report showed U.S. consumer confidence unexpectedly fell in May to a six-month low and the Institute for Supply Management-Chicago Inc. purchasing-manager index dropped more than forecast. Disappointing Data The Chicago PMI and the consumer confidence were both disappointing and probably continue the recent run of the U.S. figures, which have generally been a little bit softer in tone, said Nick Bennenbroek, head of currency

strategy at Wells Fargo & Co. in New York. It is adding a little bit of caution to the markets. The euro stayed higher after a report showed German retail sales rose in April as unemployment fell below 3 million for the first time in almost 19 years, fueling bets the European Central Bank will signal next week that it may raise interest rates for a second time this year. Sales, adjusted for inflation and seasonal swings, increased 0.6 percent from March, the Federal Statistics Office said today. Economists in a Bloomberg News survey forecast a 1.8 percent gain. A separate European Union report showed euro-region inflation slowed in May to 2.7 percent from Aprils 2.8 percent, the fastest pace since October 2008. Progress Review Inspectors from the EU, the International Monetary Fund and the ECB are set to conclude a review of Greeces progress in meeting the terms of last years 110 billion-euro ($158 billion) bailout in coming days. The EU will then formulate its plan for additional aid. Germany may stop demanding an early rescheduling of bonds for Greece so that it can get a new package of loans, the Wall Street Journal reported, citing people it didnt identify. South Africas rand rose versus all of its 16 most-traded peers. It gained 1.9 percent to 6.8021 per dollar. New Zealands dollar jumped 0.9 percent to 82.39 U.S. cents and touched 82.64 cents, the highest since it was freely floated in 1985. The Thomson Reuters/Jefferies CRB Index of raw materials rose 1.1 percent, while the Standard & Poors 500 Index advanced 1.1 percent. The yen extended losses versus the euro after Moodys put Japans Aa2 local and foreign-currency bond ratings on review for a downgrade, citing weakening growth. The company put Japans Aa2 sovereign-debt grade on negative outlook in February. Review for a downgrade means a decision is due within three months, according to Moodys. Fitch Ratings last week lowered its outlook to negative on Japans AA rating. S&P cut the outlook on its AA-grade in April after lowering the rating in

January. The current grade from Moodys is one step higher than S&P and Fitch. Under Pressure With the threat of the current global slowdown now well priced in and peripheral risks lower, funding currencies are under pressure, and the yen more so than the dollar, said Sebastien Galy, a currency strategist at Societe Generale SA in London. A funding currency is one that investors borrow to fund bets on higher-yielding assets. Canadas currency gained the most this year versus the U.S. dollar after the Bank of Canada kept its key interest rate at 1 percent and commodities rose. Raw materials account for half the nations export revenue. The Canadian dollar appreciated as much as 1.2 percent, the biggest intraday jump since Dec. 2, to 96.55 cents per U.S. dollar before trading at 96.85, up 0.9 percent. U.S. Data The Conference Boards index of U.S. consumer confidence fell to 60.8 from a revised 66 reading in April, compared with a Bloomberg survey forecast for a rise to 66.6. The Chicago purchasing-manager gauge dropped to 56.6 in May, from 67.6 in April, compared with a Bloomberg surveys forecast for 62. Investors may be unwilling to react to signs of slowing growth by buying the dollar and selling riskier assets, concerned the Federal Reserve could be prompted to increase asset purchases, according to UBS AG. There is some anticipation that if problems escalate, central banks liquidity hoses will be ready to put out even the smallest flames, just to keep growth expectations intact, Geoffrey Yu, a currency strategist in London, wrote today in an e-mailed note. Foreign-exchange markets and dollar bulls should never underestimate the proclivity of the risk chasers to price back in quantitative easing. The Fed said in November it would buy $600 billion in Treasuries through June in a second round of so-called quantitative easing to stabilize the U.S. economy. To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net