Euro advances on Swiss Central Bank speculation; hryvnia tumbles
By Bloomberg
The euro strengthened, recouping most of Wednesday’s losses against the dollar, amid speculation the Swiss National Bank may be buying the 19-nation shared currency to weaken the franc.
The euro rose to its highest level against its Swiss counterpart since the SNB scrapped its cap on the exchange rate in January. With tension in Greek markets meanwhile escalating, volatility on the euro reached levels unseen in three years. Ukraine’s hryvnia fell 31 percent against the dollar as the government loosened its management of the currency. The pound rose versus the dollar as the Bank of England kept its monetary policy unchanged.
“There is a lot of focus in the market over speculation the SNB may be buying the euro again,” said Neil Jones, head of hedge fund sales at Mizuho Bank Ltd. in London. “That helped lift the euro. While the issue about Greece is weighing on the currency, we still think that for the euro to push much lower, there needs to be a mass exodus of cash from the euro region, which hasn’t been the case.”
The euro rose 0.7 percent to $1.1426 at 7:33 a.m. New York time after dropping 1.2 percent Wednesday. The shared currency climbed 0.8 percent to 1.0587 francs and touched 1.0644, the strongest level since Jan. 15.
SNB spokesman Walter Meier declined to comment.
Price swings in the euro versus the dollar as measured by one-month historical volatility climbed to 12.48 percent, the highest since December 2011. Based on one-month implied volatility, expectations for future gyrations in the currency pair surged as much as 1.8 percentage points to 13.2 percent, approaching the Jan. 16 high of 14.1 percent, also a level unseen since December 2011.
ECB Move
Speculation on possible purchases by the SNB helped to counter concern that Greece may sink deeper into conflict with its euro-area peers after the anti-austerity Syriza party triumphed at Jan. 25 elections.
The euro already slumped about 15 percent against the dollar in the past six months as well as tumbling versus the franc this year as the European Central Bank loosened monetary policy to combat growing risks of deflation and a slowing economy. Greek government bonds slid today after the ECB said securities currently pledged as collateral under its refinancing operations would no longer be eligible as of Feb. 11.
‘Playing Hardball’
“The ECB is obviously playing hardball on Greece,” said Jane Foley, a senior foreign-exchange strategist at Rabobank International in London. “This may not be 2012 in terms of contagion risk, but it is still a threat. Any sign of Greece being deeper in trouble is going to weigh on the euro. We expect some form of compromise.”
Ukraine’s hryvnia skidded lower after the central bank said it would raise its key discount rate by 5.5 percentage points and loosen its management of the hryvnia currency. The regulator also scrapped the hryvnia’s indicative rate and canceled daily currency auctions.
The currency market is still dominated by a “panic mood,” Governor Valeriya Gontareva told reporters in Kiev on Thursday. The hryvnia weakened to 24.4865 per dollar.
Britain’s pound advanced for a third day, adding 0.5 percent to $1.5252, as the Bank of England governor kept its key interest rate at a record-low 0.5 percent.
The Aussie rebounded from a two-day slide against the dollar as investors viewed China’s decision to ease policy as bolstering Australia’s economy. China is the South Pacific nation’s biggest trading partner.
The People’s Bank of China cut the amount of cash lenders must set aside as reserves to 19.5 percent from 20 percent, effective Thursday.
“China is helping the Aussie stabilize at the moment,” said Stan Shamu, a Melbourne-based market strategist at IG Ltd. “There’s still talk of further easing” by the PBOC, he said.
The Australian currency added 0.7 percent to 78.09 U.S. cents.