Dollar Rises on Speculation Europe Won’t Agree on Greece Aid

By Yasuhiko Seki and Ron Harui

March 23 (Bloomberg) -- The dollar rose toward a three-week high against the euro amid speculation European Union leaders won’t agree on an aid package for Greece at a summit this week, stoking demand for the greenback as a refuge.

The U.S. currency advanced versus 15 of 16 major counterparts after European Central Bank President Jean-Claude Trichet spoke out against offering low-interest loans for which the Greek government has pressed. The Swiss franc was near a record high against the euro on speculation its central bank is relaxing a policy of selling the currency.

“There are lingering worries that the EU may not give financial assistance to Greece,” said Yuji Saito, director of the foreign-exchange department in Tokyo at Credit Agricole CIB. “This uncertainty seems to be weighing on risk sentiment. The bias is for the dollar and the yen to be bought.”

The dollar climbed to $1.3523 per euro as of 6:53 a.m. in London from $1.3558 in New York yesterday, when it rose to $1.3464, the highest level since March 2. The greenback advanced to $1.5065 per pound from $1.5100. The U.S. currency fetched 90.30 yen from 90.14 yen.

The euro erased early gains against the yen, trading at 122.12 yen from 122.21 yen in New York yesterday.
Trichet’s demand for stringent terms and German Chancellor Angela Merkel’s push for sanctions against nations that breach deficit limits heightened chances that Greece will leave a March 25-26 summit empty-handed. Prime Minister George Papandreou has said he’ll turn to the International Monetary Fund for aid if necessary.

Trichet, Merkel 

 
“There shouldn’t be any subsidy element, no concessionary element” in a potential loan to Greece, Trichet told lawmakers in Brussels yesterday. Merkel said in Berlin that there’s no need for EU leaders to make any “concrete decisions” on Greek aid this week.

Luxembourg’s Jean-Claude Juncker, who heads the group of euro-region finance ministers, said the European Union will not “abandon” Greece.

Conflicting signals from European leaders before the summit triggered three days of declines in Greek debt that pushed the yield on 10-year bonds to 6.44 percent yesterday, the highest since Feb 25.
“Political wrangling over Greece among EU members may continue to weigh on the euro,” said Kazumasa Yamaoka, a senior analyst in Tokyo at GCI Capital Co., which advises on foreign currency, overseas investments and hedge funds. “This will throw cold water on riskier assets.”

Swiss Intervention 

The franc climbed to a record against the euro yesterday even after the Swiss National Bank stressed it will “act decisively” to prevent an “excessive” appreciation of the currency if needed.

SNB President Philipp Hildebrand is seeking to limit gains in the franc as concern about deficits in Greece, Portugal and Spain boost demand for the currency as a refuge. The franc’s strength is fueling concern deflation will take hold after prices declined for two consecutive months for the first time in a year.
“From a fundamental point of view there is more room for an appreciation of the Swiss franc,” said Marcus Hettinger, foreign-currency analyst at Credit Suisse Group AG in Zurich. “Our analysis shows that its fair value is at 1.40 versus the euro. It may appreciate further. Only if it happens too fast, the SNB might intervene.”

Hildebrand will speak today at the University of St. Gallen in Switzerland.
The franc was at 1.4359 per euro from 1.4346 yesterday, after appreciating to a record 1.4309.

Aussie Dollar 

Australia’s dollar slipped 0.3 percent to 91.56 U.S. cents. It may fall further to a two-week low after retreating from so- called resistance at 92.52 cents, according to Pak Lai Ng, a currency strategist at Forecast Pte in Singapore.

The currency’s failure last week to advance beyond that resistance level, which is on a downtrend line connecting the highs reached in November, January and March, suggests it may decline toward major support between 90.66 and 90.93 cents, he said. The currency’s daily momentum indicators such as the 14- day relative strength index, a chart used to predict changes in price direction, also are “topping out,” he said.

To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.
Last Updated: March 23, 2010 03:10 EDT