Euro Rises From 1-Year Low on View IMF Will Boosts Greece Aid

By Yasuhiko Seki and Ron Harui

April 28 (Bloomberg) -- The euro climbed from a one-year low against the dollar on speculation the International Monetary Fund will provide more aid to Greece, easing concern the nation’s debt woes will spread through the region.

The euro ended two days of losses versus the pound after the Financial Times reported the IMF may increase its share of financial aid to Greece by 10 billion euros ($13.2 billion) from the current 15 billion euros, citing unidentified bankers and officials in Washington. The Australian dollar rose on speculation accelerating inflation will prompt policy makers to raise interest rates next week.

“In the near term, we can expect a rally in the euro,” said Adam Carr, a senior economist in Sydney at ICAP Australia Ltd., a unit of the world’s largest interdealer broker. “Look for a joint announcement from the IMF and the European Union. This is much more likely than a default.”

The euro rose to $1.3210 as of 6:32 a.m. in London, after earlier dropping to $1.3145, the least since April 29, 2009. The currency closed at $1.3175 in New York. It advanced to 86.45 pence from 86.31 pence. The euro climbed to 123.11 yen from 122.88 yen after touching 122.37, the weakest since March 25.

Australia’s currency rose 0.7 percent to 92.19 U.S. cents and gained 0.6 percent to 85.85 yen.

Greece’s Aid Package

The combined 45 billion-euro aid package for Greece put forward by the European Union and IMF may be increased to at least 70 billion euros amid fears the bailout will fail to control Greece’s debt crisis, the FT said.

Speculation of more IMF aid “is a mild positive for the euro,” said Yoh Nihei, a Tokyo-based trading group manager at Tokai Tokyo Securities Co., a unit of Tokai Tokyo Financial Holdings Inc. “There’s some covering of short positions” that bet on a weaker currency, he said.

The euro earlier approached a five-week low versus the yen on concern that Greece’s debt problems will spread across Europe after Standard & Poor’s lowered Greece’s credit rating to junk and cut Portugal’s ranking by two steps.

“The source of this bout of risk aversion is escalation in European sovereign debt concerns,” said John Kyriakopoulos, head of currency strategy at National Australia Bank Ltd. in Sydney. “Traders will be watching for a break below support around $1.3000 with sentiment toward the euro taking another leg down.”

ECB, IMF

European Central Bank President Jean-Claude Trichet and IMF Managing Director Dominique Strauss-Kahn will brief German parliamentary leaders in Berlin around noon today about aid for Greece, which has met with opposition in Europe’s biggest economy. The joint EU-IMF package would require Germany to provide the biggest individual loan to Greece.

Futures traders increased bets the euro will fall against the dollar, according to figures from the Washington-based Commodity Futures Trading Commission. The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 71,424 on April 20, compared with net shorts of 55,464 a week earlier.

The dollar also weakened on speculation Federal Reserve policy makers will keep interest rates near zero at their two- day meeting that started yesterday, diminishing the appeal of U.S. assets.

Fed Meeting

Chicago Fed President Charles Evans said on April 19 that while the U.S. recession is “definitely over,” unemployment will take time to decline and a low interest-rate policy is “very important” for now. The Fed will leave its target lending rate in a range of zero and 0.25 percent at the meeting, according to all 102 economists surveyed by Bloomberg News.

“The Fed is likely to hold the policy rate unchanged and maintain rhetoric on the duration,” said Tomohiro Nishida, a Tokyo-based foreign-currency dealer at Chuo Mitsui Trust & Banking Co., a unit of Japan’s seventh-largest banking group. “This will prompt short-term players to cut long positions on the dollar.”

Aussie Rises

The so-called Aussie climbed against all of its 16 major counterparts after a report today showed consumer prices in the first quarter increased more than economists expected.

“Underlying inflation looks a little bit stronger than the market had expected,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “People may increase expectations that the RBA will increase interest rates next week and that’s supporting the Australian dollar.”

Australian consumer prices rose 0.9 percent in the first quarter, the Bureau of Statistics said in Sydney. Economists surveyed by Bloomberg News predicted a 0.8 percent gain.

The RBA is forecast to raise its benchmark interest rate to 4.5 percent at the May 4 meeting, according to the median estimate of 23 economists in a Bloomberg News survey.

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: April 28, 2010 01:53 EDT