Weekly Forex Round-Up: Euro (EUR) Advances despite Lack of Greece Deal

on Nov 23, 2012

While at the start of the week the Bank of Japan (BOJ) policy meeting and the Eurozone finance ministers’ discussions on Greece were among the most anticipated events as regards the yen and the euro, the movements of both currencies contradicted the tone set by the outcome of the respective policy meetings. The single currency appreciated despite the lack of a deal on Greece, whereas the yen plunged to a seven-month low during the week although the BOJ did not introduce fresh monetary stimulus.

**Greece Optimism Conquers All**
On November 23, Bloomberg reported that the euro strengthened to the highest level in three weeks, and in addition, the single currency was headed for a weekly gain versus the majority of its 16 most-traded counterparts. The euro uptrend is a bit surprising, considering that the Eurozone finance ministers failed to reach a deal on Greece on Tuesday, Moody’s (NYSE:MCO) cut France’s top investor rating, and the Markit Eurozone PMI data released on Thursday suggested the strongest contraction of output since the second quarter of 2009. While both the lack of deal on Greece and France’s rating downgrade weighed on the euro, their impact was short-lived.

During the week, traders seemed to focus on hopes that a deal on Greece would be reached early next week as well as on positive manufacturing data coming from China, with the single currency rising to a two-week high on Thursday, and extending gains to reach a three-week high on Friday. Bloomberg reports that the euro rose 0.3 percent to $1.2918 at 8:37 EST, after reaching $1.2925, the highest since November 2, and extending its weekly gain to 1.4 percent. The single currency was also boosted by data showing that German business confidence rose in November.

!m[Yen (JPY) Suffers Despite BOJ Policy Decision](/uploads/story/889/thumbs/pic1_inline.png)“There has been some optimism seeping back into the euro,” noted Jane Foley, a senior currency strategist at Rabobank International, as quoted by Bloomberg. “Nobody anticipates that Greece will be allowed to become a dominant factor for the market. From here, the gains for the euro could be a little bit tougher.”

**Election Speculation Outweighs BOJ Refraining from Stimulus**
And while in Europe Greece-related optimism pushed the euro higher against all odds, in Japan, “fear” of the opposition party leader Shinzo Abe trumped the decision of the BOJ to refrain from additional monetary easing at its two-day policy meeting. The BOJ decision did boost the yen on Tuesday; however, speculation that Mr Abe, whose Liberal Democratic Party (LDP) is forecast to win the December election will pursue aggressive monetary easing, sent the yen plunging to a seven and a half month low against the US dollar on Thursday.

On November 23, the yen clawed back some losses, appreciating 0.3 percent to 82.21 per dollar, as reported by Bloomberg. Yet, despite the slight rebound, Japan’s currency is still set for a second weekly decline. “We believe the yen will start on a multi-year weakening trend,” notes Thanos Papasavvas, strategist at Investec Asset Management, as quoted by Bloomberg. “The most underweight currency we have is the Japanese yen because of the continuing uncertainty in the political environment.”
**Pound Set for Weekly Gain versus the US Dollar**
The pound also had an interesting week, with minutes from the Bank of England policy meeting released on November 21 sending the sterling 0.1 percent higher versus the euro and the greenback.
On November 23, Bloomberg reported that the UK currency declined to its weakest level in four weeks against the euro. “A lot of the pound strength is it tracking the euro against the dollar, as if you look at pound-euro, sterling is going to finish lower on the week,” noted Lee McDarby, head of dealing on the corporate and institutional treasury desk at Investec Bank Plc, as quoted by Bloomberg.
Against the greenback, however, the pound is set for a 0.4 percent weekly advance, and was little changed at $1.5942 at 11:48 a.m. GMT.