Euro Rises From 10-Month Low as Trichet Welcomes Greek Solution

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By Yasuhiko Seki and Ron Harui

March 26 (Bloomberg) -- The euro rose from a 10-month low against the dollar after European Central Bank President Jean- Claude Trichet toned down his opposition to the International Monetary Fund’s involvement in a Greek rescue plan.

Europe’s currency rose versus 13 of its 16 most-active counterparts on speculation European leaders will announce an agreement on a Greek rescue package at the end of a two-day summit in Brussels today. The yen rose from an 11-week low against the dollar on speculation Japanese exporters took advantage of its largest weekly loss this year to buy the currency before the fiscal year ends next week.


“A change in Trichet’s stance toward an aid plan for Greece triggered a knee-jerk buy-back of the euro,” said Yuichiro Harada, senior vice president of the foreign-exchange division at Mizuho Corporate Bank Ltd., a unit of Japan’s second-largest lender. “This change also helped ease concerns over discord among European leaders on how to resolve the debt problems in Greece.”

The euro advanced to $1.3325 as of 11:51 a.m. in Tokyo from $1.3273 in New York yesterday, after earlier falling to $1.3268, the weakest level since May 7. The 16-nation currency traded at 123.24 yen from 123.08 yen. The yen climbed to 92.49 versus the dollar from 92.73 yesterday, when it fell to 92.96, the lowest since Jan. 8.

‘Extraordinarily Happy’ 

The euro gained for the first time in four days versus the dollar after Trichet told reporters in Brussels late yesterday that he was “extraordinarily happy that the governments of the euro area found out a workable solution.”

Earlier, the ECB President had said an IMF role in the funding of a rescue for Greece, which has the region’s largest debt level, would be “very, very bad.” Trichet is concerned turning to the IMF to help Greece would show Europe can’t fix its own problems and earlier this month dismissed such a move as “inappropriate.”
Europe’s currency still headed for a second weekly decline versus the dollar on concern that Greece’s fiscal austerity measures will limit government spending and curb wages, spurring deflation in the debt-laden country.

“Given the weak level of help, it suggests that the main valve of adjustment will be a weaker currency as countries can only deflate relatively slowly,” analysts led by Hans-Guenter Redeker, London-based global head of foreign-exchange strategy at BNP Paribas SA, wrote in a research note dated today.
The effects of deflationary decisions can be forecast by “looking at Ireland’s experience,” the analysts said, citing the nation’s gross domestic product report released yesterday. Ireland’s GDP shrank 2.3 percent last quarter from the previous three months when it contracted 0.1 percent, according to government data.

Yen Gains 

The yen rose for the first time in four days against the dollar on speculation Japanese exporters bought the currency after it weakened to the lowest since January yesterday.

“Given the fact that Japanese exporters haven’t launched any hedging operations for the coming quarter, it wouldn’t be a surprise if they started to do so at this level,” said Tsuyoshi Okada, managing director in Tokyo at Gaitame.com Research Institute Ltd, the research unit of Japan’s largest foreign- exchange margin dealer.
Japan’s large manufacturers expect the yen to average 91.16 per dollar in the six months to March 2010, according to the Bank of Japan’s most recent Tankan survey.

To contact the reporter on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.